Arthur J. Gallagher & Co. Q4 2025 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 30, 2025
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Operator

Good afternoon and welcome to Arthur J. Gallagher & Company's fourth quarter 2024 earnings conference call. Participants have been placed on listen only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward looking statements within the meaning of the securities laws. The Company does not assume any obligation to update information or forward looking statements provided on this call. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning Forward looking Statements and Risk Factors sections contained in the company's most recent 10K, 10Q and 8K filings for more details on such risks and uncertainties. In addition, for reconciliations of the non GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the Company's website. It is now my pleasure to introduce JJ. Patrick Gallagher Jr. Chairman and CEO of RCJ Gallagher Company. Mr. Gallagher, you may begin.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Thank you very much. Good afternoon, and thank you for joining us for our fourth quarter '24 earnings call. On the call for today is Doug Howell, our CFO, other members of the management team and the heads of our operating divisions. Before I get to my comments about our financial results, I'd like to acknowledge the tragic wildfires in California. Our heartfelt thoughts are with all those impacted, including our own Gallagher colleagues. Our company and industry has such an important role in responsibility, helping families, businesses and communities rebuild and restore their lives. And like many times before, Gallagher and the industry will rise to the occasion. Okay. Onto my comments regarding our financial performance, we had an excellent fourth quarter. For our combined brokerage and risk management segments we posted 12% growth in revenue, our 16th consecutive quarter of double-digit revenue growth, 7% organic growth reported net earnings margin of 13.5% and adjusted EBITDAC growth of 17% and adjusted EBITDAC margin of 31.4%, up 145 basis points year-over-year. GAAP earnings per share of $1.56 and adjusted earnings per share of $2.51, up 50% year-over-year. The December capital raise for the acquisition of AssuredPartners creates some noise in these headline numbers that will peel back the impact in his comments, regardless, another fantastic quarter to close out another terrific year by our team. Moving to results on a segment basis, starting with the Brokerage segment. Reported revenue growth was 12%. Organic growth was 7.1%. Base commission and fees were 7.8%, in line with our expectations, which got offset a bit by slightly lower contingents. Adjusted EBITDAC margin expanded 168 basis points to 33.1%, which includes interest income related to funds raised for the acquisition of AssuredPartners. Excluding net interest income, margin expansion was 109 basis points. Let me give some insights behind our Brokerage segment organic. With our PC retail operations, we delivered 6% organic overall. The U.K., Australia and New Zealand were all in the high single digits. U.S. retail organ was around 5% and Canada was down a couple of percent, impacted by lower contingents. Our global employee benefit brokerage and consulting business posted organic of about 10%, a really strong finish that includes the catch-up of the large live case sales that shifted from earlier in '24. Shifting to our reinsurance wholesale and specialty businesses in total organic of 9%, which overcame some expected market headwinds in our global aerospace business. So very strong growth, whether retail wholesale oriented. Next, let me provide some thoughts on the PC insurance pricing environment starting with the primary insurance market. Overall, the global PC insurance market continues to grow. With fourth quarter renewal premium increases, that's both rate and exposure combined, consistent with the past 2 quarters. Thus far in January, renewal premium increases are ticking slightly higher than fourth quarter and are above 5%, driven by increases in casualty lines like Umbrella and Commercial Auto. Taking down fourth quarter global renewal premium changes by product line, we saw the following: property and professional lines were about flat. Workers' comp up 1%, General Liability up 4%; Commercial Auto up 9%, Umbrella up 10% and Personal Lines, up 9%. So we continue to see increases across most lines and geographies. Carriers are behaving rationally and pushing for increases where it's needed to generate an acceptable underwriting profit. It's a great market for us to operate in because we can further differentiate ourselves with our leading tools, data and expertise. Remember, our job as brokers is to help clients find the best coverage that fits their budget while mitigating price increases. We're becoming more successful securing lower pricing for our property customers, especially cat-exposed property, which enables them to buy more limit or reduce their deductibles resulting in more coverage for the same spend. Shifting to the reinsurance market. Overall, 1/1 renewals were orderly and reflected an environment that generally favored reinsurance buyers. Growing demand from property cat cover was met with sufficient reinsurance capacity despite 2024 being an elevated year with more than $150 billion of estimated insured natural catastrophe losses. This resulted in property price declines that were greater at the top end of reinsurance towers. And similar to January '24 renewals reinsurers continued to exercise discipline on terms and did not revert to attachment points that expose them to greater frequency. Reinsurance buyers of specialty coverages saw modest price declines across many lines of coverage, but again, no softening in terms and conditions. Shifting to casualty, while there was adequate reinsurance capacity. Reinsurers remains cautious on U.S. casualty risks due to elevated loss cost trends and potential reserve in. Looking forward, wildfire losses and casualty reserve increases seem to be the here in January, and time will tell how each of these ultimately the market regardless Gallagher Re had a fantastic one-one with some nice new business wins and should continue to excel in this environment. Some comments on our customers' business activity. During the fourth quarter, our daily revenue indications from audits, endorsements and cancellations remain in net positive territory. The same is true for full year 2024. While the activity is not quite as high as '23, the revenue adjustments this past year are very close to full year '22. So we continue to see solid client business activity and no signs of a meaningful global economic slowdown. Within the U.S., the labor market remains strong. Since April '24, the number of open jobs has remained relatively steady and at a level that is still well above the number of unemployed people looking for work. Employers are looking for ways to grow their workforce and control their benefit costs. And at the same time, base wage increases and continued medical cost inflation, both are headwinds that our professionals are helping to navigate. Regardless of market conditions, I believe we are well positioned to take share across our brokerage business. Remember, 90% of the time, we are competing against the smaller local broker that cannot match our niche expertise, outstanding service for extensive data and analytics offerings. So with some nice momentum in net new business production across our brokerage business, a PC market still seeing mid-single-digit premium growth and a strong U.S. labor market. We continue to see full year '25 brokerage segment organic in the 6% to 8% range. Moving on to our Risk Management segment, Gallagher Bassett. Revenue growth was 9%, including organic of 6%. Heading into '25, we should continue to benefit from excellent client retention increases in our customers' business activity and rising claim counts. Adjusted EBITDA margin was 20.6%, in line with our October expectations. Looking ahead, we still see full year 25% organic in that 6% to 8% range and margins around 20.5%. Shifting to mergers and acquisitions. During the fourth quarter, we completed 20 new tuck-in mergers at fair prices, representing around $200 million of estimated annualized revenue bringing the full year to $387 million. Those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family professionals. And of course, the big news in December was signing an agreement to acquire AssuredPartners with $2.9 billion of annual pro forma revenue. It's a compelling opportunity to build upon our commercial market focus deepen our niche practice groups and further leverage our data and analytics, allowing us to provide even more value to clients. It should also expand our tuck-in M&A reach and create more retail and specialty revenue opportunities across Gallagher. What is especially exciting is that the combination involves 2 highly innovative entrepreneurial and sales-based cultures. Although we will continue to operate as 2 independent companies until close, we have started discussions and are very impressed with the talent, professionalism and excitement of the Assured colleagues. We anticipate we will receive necessary approvals and complete the acquisition sometime here in the first quarter. In addition to the pending Assured Partners acquisition, we have about 45 term sheets signed or being prepared, representing around $603 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. With a strong close of the year, let me reflect on our full year financial performance for brokerage and risk management combined, 15% growth in revenue. 7.6% organic growth, 18% growth in adjusted EBITDAC. 48 mergers completed with nearly $400 million in estimated annualized revenue, and we signed a definitive agreement to acquire AssuredPartners. These are terrific metrics. And as proud as I am of the excellent financial performance this year, I'm more proud of the way our culture is stay here as we continue to expand. Our culture is about our colleagues, guided by the Gallagher Way and the rock solid foundation they form based on every intervention we have, whether it's clients, carriers, future merger partners or with our Gallagher colleagues around the globe. Frankly, our culture is unstoppable and that is the Gallagher Way. Okay. I'll stop now and turn it over to Doug. Doug?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Thanks, Pat, and hello, everyone. Today, I'll quickly recap some from our quarter and replay our early thoughts on 2025, most of which Pat just touched on, then use the rest of my time to unpack the AssuredPartners financing activities on our results during the quarter. Then I'll wrap up my prepared remarks with my usual comments on cash, M&A and capital management. Okay, highlights from our fourth quarter that you'll see in our earnings release, terrific base mission and fee organic growth of 7.8% and solid supplemental growth of 4.7%. And while contingents went backwards a bit this quarter, we don't see that as a trend by any means. As I look to 2025 brokerage organic, Pat relayed that we're in a favorable environment with rates still needing to increase to cover higher loss costs, trillions of global premiums growing and inflating and our sales and service offerings, outpacing our competitors, which should increase both new business and our retentions. So as we sit here today, we still believe our full year '25 brokerage segment organic growth should be in that 6% to 8% range. That's unchanged from what we said in October. As for brokerage margins, a little noise on Page 5 of the earnings release. Please see the footnote. You'll read that the margin was aided by about $20 million of interest income earned on cash, we are holding to close Assured Partners. Adjusting for that, our margins would have been 32.5%, up 109 basis points over last year. That's nicely above our October expectation of margin expansion in the 90 to 100 basis point range. Looking ahead to '25, we are still viewing margin expansion like we have -- like we've said many times before. We see margin expansion starting around full year organic growth of 4%. At 6%, maybe we could see 50 basis points and at 8%, perhaps 100 basis points of expansion. Of course, those ranges can then be impacted by changes to interest income on our fiduciary assets and then the rolling impact of M&A. By our March IR day, maybe we will have a better read on where interest rates might go and also the impact of Assured rolling into our numbers. But at this time, we don't see either having a significant impact on those ranges. So really no change to how we're thinking about margins in 2025. As for risk management, another solid quarter, posting 6% organic, admittedly, a couple of million dollars below our October expectations, all stemming from a smaller quarter of construction consulting revenues in the Northeast -- and the Northeast that can be just a little bit lumpy. So adjusted margin expansion of 20.6% was -- in the quarter was also in line with our October expectations. And then looking forward, we're seeing full year '25 organic also in that 6% to 8% range margins again around 20.5% for the year. So a great quarter and full year by both our brokerage and risk management teams and both have a strong outlook for '25. Turning to Page 6 of the earnings release and the corporate segment shortcut table. For the interest in banking line, we are a bit better than our October forecast because we just were not into our line as much as we thought at that time. for the adjusted acquisition lines for M&A and clean energy, both were close to our October expectations. Then when you look at the corporate line of the Corporate segment, that was better than our expectation due to unrealized noncash foreign exchange remeasurement income, which was partially offset by a return to actual tax catch-up of about $4 million. So let's move from our earnings release to the CFO commentary document that we posted on our IR website. First, an overarching statement. Please take some time to read any headers or footnotes throughout this document to understand what information has or hasn't been updated for the AssuredPartners deal. So let's move to Page 3 for our modeling helpers across the board, fourth quarter '24 actual numbers were fairly close to what we provided that in October. As for '25, we provided a first look of what we forecast. Again, none of these numbers include any impact from AssuredPartners. Turning to Page 4. I first look at our corporate segment outlook for full year '25. The only impact of Assured is the interest is found in the interest in banking line. It includes additional interest expense from the $5 billion debt raise. Looking to Page 5 of the CFO commentary document where our tax credit carryforwards. As of year-end, about $770 million that will be used over the next few years, so still a nice sweetener to fund future M&A. We would not expect those numbers to move much because of the Assured financing nor the rolling of Assured's taxable income. That's because of the interest shield and also the amortization of the $5 billion deferred tax asset that we'll get with Assured Partners that should save us about $1.4 billion of taxes over the coming years. Flipping over to Page 6, the investment income table. This table includes an assumption of 225 basis point rate cuts in '25. It includes interest income from cash we're holding to pay for Assured, assuming a late March close, but it does not include interest income from Assured's fiduciary assets after closing. When you ship down on Page 6 to the rollover revenue table, the pinkish column to the right include estimated revenues for brokerage M&A that we closed through yesterday. Then below that table, we've added a separate section for AssuredPartners revenues, again, assuming a late March close, which, of course, is highly dependent on regulatory approvals. Then just a reminder, you also need to make a pick for other future M&A. And then further down on that page, you'll see Risk Management segment rollover revenues for '25 are expected to be approximately $5 million for each of the first 2 quarters. All right. Moving to Page 7. This is a new page to help you see the impact of the AssuredPartners financing on our fourth quarter '24 revenues, EBITDAC, net earnings and EPS by segment. The 3 items just to keep in mind, there was additional incremental interest income on the CAS that we were holding to fund the acquisition. There was additional interest expense we incurred on the newly issued $5 billion worth of debt. And then the additional shares outstanding from the December equity offering. You'll see that for fourth quarter, it all nets out to nearly nothing, but it does cause a little noise in our numbers. Also, the call-out box on the right of that page provides some information on shares outstanding because of the AssuredPartners equity raise for our first quarter, this includes the full impact of the shares we issued in December and the exercise of the greenshoe in early January. Finally, if you flip to Page 8, you'll see on this page is just a repeat of what we provided in the December assured presentation for ease of reference. There's no new news on this page. Finally, let's moving cash, capital management and M&A funding. Available cash on hand at December 31st was more than $14 billion, of which approximately $13.5 billion will be used to fund AssuredPartners. Since year-end, we received another $1.3 billion as the underwriters exercised the green shoe. So considering this and our strong expected free cash flow. We are in an excellent position to fund our M&A pipeline of opportunities. Here in '25, it's looking like we could have $3.5 billion to fund future M&A then it jumps up to nearly $5 billion in '26, all while maintaining a solid investment-grade rating. So an excellent quarter and an excellent year to have in the books. As I reflect on '24, I have to say that we had a pretty terrific year. For the combined Brokerage and Risk Management segment, we posted adjusted revenue growth of 14%, organic of 7.6%. Overall margin expansion of 94 basis points and most importantly, we grew our EBITDA 1%. Those are terrific numbers and reflects what Pat said, That's our unstoppable culture. So those are my comments. Back to you, Pat.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Doug. Rob, do you want to open it up for questions.

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Operator

Sure. Mr. Gallagher, we'll now open the call for questions. If you have a question, please pick up your handset and press Star one on your telephone at this time. If you're on a speakerphone, please disable that function prior to pressing one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing two. Additionally, we ask that each participant limit themselves to one question and one follow up. Again, that's Star one for the questions. Our first question comes from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question.

Michael Zaremski
Analyst at BMO Capital Markets

Hey, good evening. First question, surrounding the cadence of organic growth next year, loud and clear, 6% to 8%, no change, I guess, for both segments. I guess I'm more specifically focused on the Brokerage segment. But in terms of the cadence seasonality, anything you'd like to call out 2 of your peers called out kind of weaker seasonality in 1Q. We do know that reinsurance is overweight in the beginning of the year 2 and maybe downward pricing there could cause some year-over-year tougher comps.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Let me go back to that -- let me start with the end of that is there have been some price changes on the reinsurance, but our customers are buying more reinsurance. So when you look at the total spend for us that our customers are spending, we're really not seeing a decrease. And like Pat said in his comments, we had a terrific new business quarter also. Going back to the first part of your question, yes, reinsurance is typically stronger in the first quarter. And so you could see some seasonality of better organic growth in the first quarter than what develops up for the rest of the year. Offsetting a little bit about that is we do have a substantial amount of our health and welfare and medical benefits that renew in the first quarter. that mitigate maybe a higher reinsurance on it. And then throughout the year, our retail is performing well. Our wholesale is seems to be getting stronger and stronger. Our programs are doing well. But yes, you would see a little seasonality because of reinsurance in the first quarter and our organic growth.

Michael Zaremski
Analyst at BMO Capital Markets

Okay. Got it. So you're saying actually it could be higher, not lower, even the reinsurance pricing is down. Okay...

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

If I have a chance to talk to you again on our March IR Day, then we should have a better feel of the seasonality for that, too.

Michael Zaremski
Analyst at BMO Capital Markets

Okay. Awesome. The last question is on do share investment income, I'm thinking through post the deal close, if you're able to comment. So my understanding that the company purchasing kind of didn't fully leverage its fiduciary income in that it had a lot of kind of -- it's kind of -- it was direct pay relationships between the businesses paying directly to the insurance carriers and and you guys might be able to optimize that working capital to gain more fiduciary assets. Is that if that's what I'm describing is correct, could you offer kind of a time line, and how that works in terms of kind of getting those asset balances onto your balance sheet?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. Yes. Your recollection is correct. And I think that if you go back, I don't know, 10 years ago when we went through our exercise of consolidating bank accounts from around the world. This will be obviously mostly in the U.S. We did have some good success of picking up more fiduciary cash into our accounts, and I think that will be invested. So we do see that as an opportunity that will be better together on that metric. So yes, there should be versus their run rate, I'm guessing, together will be better on that going forward.

Michael Zaremski
Analyst at BMO Capital Markets

Doug, is just any -- is that kind of a one-year process or is that like a takes many years?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Listen, I -- listen, in 18 months, we shouldn't be talking about it anymore. So I think we'd get it done. Hopefully, faster.

Operator

Thank you. The next question is from the line of Gregory Peters with Raymond James. Please proceed with your questions.

Charles Peters
Analyst at Raymond James

Good afternoon, everyone. Hey, Greg. I guess I'd like to start with California. Given the substantial potential loss to the insured market, there's if you could give us some perspective of how it might touch your operations. I'm interested in the business going in inside RPS, if there's any any impact on the wholesale market that you're seeing. If you can just talk about your perspectives of that as we watch this disaster unfold that would be great.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, first of all, Greg, this is Pat. We reached out to thousands of clients already to make sure that they had the knowledge of how to file claims and what have you. how to get a hold of us if they're having difficulty in filing those claims. We are presently tracking. I forget the exact number today, but we have hundreds of claims that we're helping our clients with already. I think that you've got a situation, it's going to continue to unfold for us. We're a big player in California. We're a big player in Los Angeles, not huge in personal lines there, but it's going to keep us incredibly busy for a number of months. And then in terms of the impact of that. Luckily, again, we've been able to stay in touch with our people. We have had our folks at -- in some instances, were evacuated. We did not lose anybody and don't have many of our folks that have lost any of their homes. So I think we'll be well in a strong place to help our clients. But I can't give you much more than that right now in terms of how it's going to impact our day-to-day activities out there.

Charles Peters
Analyst at Raymond James

Okay. And then I guess my follow-up question is switch gears. You mentioned in your comments about the lower contingents. Just curious, given the profitability we're seeing in the industry, I would have imagined that supplementals and it continues to be up. And I think your guidance for '25 suggests that they should go back up again. But maybe you could spend a minute and give us some color on what happened with contingents, and then color on your outlook.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes, great question, Greg. Thanks for asking. Let us said, I ended in my comments. This isn't a trend in what you said there is right. We would expect it to bounce back up again. Frankly, it's simply because as we get the final year and loss ratio estimates in from the carriers. They're coming up just a little bit higher than what maybe we had been anticipating throughout the year. And to put this in context, we see this as about maybe a $7 million shortfall to what we're thinking back in October. A third of it is -- 2/3 of it is spread across hundreds of contracts. And so if the loss ratios are ticking up just a little bit it might -- that probably cost us $4 million of it. And then another 1/3 is we had about 3 contracts in and programs in Canada that just really kind of came in here in January with really not very great results. So that's what -- but if you look at it on an annual basis, when you combine supplementals and contingents, I think if I do the math here, mentally, I think it's about 8%, even with a small blip in the fourth quarter. So it's still a terrific year. But I wouldn't overread that there's some systemic shift in what contingents and supplementals are going to be going forward. So I would expect those numbers to grow over the blip this year considerably.

Charles Peters
Analyst at Raymond James

Just a clarification on that answer, Doug. Is there a specific line of business, is there across, a broader business set?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

It's across the line, right? I mean I wouldn't say anything there. We have hundreds of these contracts. So -- and we get a lot of this information coming in here right around the first week or 2 of January. I guess, by the way I'm saying on the $600 million number only to have maybe $3 million or $4 million of what I would say, loss ratio. I think our picks have been pretty good throughout the year.

Operator

Our next question comes from the line of Andrew Kligerman with TD Securities. Please proceed with your questions.

Andrew Kligerman
Analyst at TD Cowen

Hey, good afternoon. First question is around the risk management segment. Thinking back to last year, you had guided to 9% to 11% organic growth for this year. And now for next year -- for '24 that is, and now for '25, you're guiding to 6% to 8%, which I still think is fabulous. But what's kind of changing that your guidance isn't light as robust as it was to start last year?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Here's the thing is I think that this business, if you recall, we can get some pretty large contracts that come in. It is a little bit more elephant hunting, so to speak. So this year, I think that we've got some nice new business in the pipeline coming into '25. And so I think if you go back in the history of Gallagher Bassett and the risk management say, well, we have periods like this, we're able to grow mid-single digits, something like that, and then they'll have a couple of nice large contracts. We still see that happening. Some of our government programs that we do down in Australia. I have some nice opportunity. And then more and more, we're proving to the carriers left and right, that we can actually deliver better claim outcomes on that business. And as a carrier decides to use us for their claims payment process on work comp and general liability. We're not storm chasers. Remember, then -- but it is a little bit more of a lumpy business as we -- because we get some pretty nice ice.

Andrew Kligerman
Analyst at TD Cowen

So like you never know, you could probably find another elephant this year, right?

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Yes, right. There is impact -- our product list is always filled with elephants. Just to hide every once in a while.

Andrew Kligerman
Analyst at TD Cowen

Got it. And then I was just kind of curious about your operations in India with Center for Excellence where I think you have about 12,000 employees right now. And as you look out through this year, do you need to add people given the AssuredPartners transaction? Can you keep it steady? And is technology making it such that you really don't need to hire that much?

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, you got both ends of that correct, Andrew. We're going to be using technology quite a bit. And as we use technology that does make that group they're much more efficient. And yet at the very same time, our organic growth and our acquisition growth puts a lot more demand in the structure. And so at about 12,000 employees, I think that at this time next year, you'll see us up additional thousands.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. The other thing to think about is the value that it brings is when it goes into our service centers, remember, those are our folks they're not working for anybody else. They work for us. It causes standardization, it causes process improvement. I got to tell you, that gives us a head start by years and years when it comes to implementing technologies and AI into the work that's already been standardized. And truthfully, as we develop AI technology that replaced some of that work there all of those folks have opportunities as our growth, they don't lose their jobs. It's just they move up higher in the value chain on it. And so it's really a juggernaut in my opinion, in terms of our ability to offer some of the very best service in the world.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

And unless you standardize that service; a, you can't automate it. But b, when you do standardize it, it makes you better and better at the service for our clients, just take certificates of insurance. We're going to issue 3 million, 4 million of them pretty much air free. There aren't any real brokers that can claim that.

Andrew Kligerman
Analyst at TD Cowen

I see. So maybe the bottom-line takeaway is you may add 1,000 or two employees, but it's still scalable. You're still getting better margins from that. Is that the right final takeaway

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Yes, you're right on the money.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

It won't surprise me that in like-for-like in five years, we've doubled that number.

Andrew Kligerman
Analyst at TD Cowen

Got it. Thank you.

Operator

Our next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.

Elyse Greenspan
Analyst at Wells Fargo & Company

Hi, thanks. Good evening. My first question is on the brokerage outlook for '25. So you reaffirmed the 6% to 8%, Doug, I think when we last spoke in October, you said maybe benefits is a 5, reinsurance is 9. I want to confirm that's where you still see it. And then you also had said you would provide, I think, by line in a little bit more detail at the December day, which did not happen. Could you give us a sense even away from benefits in reinsurance, just how you see all your businesses trending organically in the 6% to 8% '25 brokerage guide?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes, confirming everything you said. I think Pat did a pretty good job in his script of telling you how those businesses are growing right now. I think those are good guesses for next year at this point.

Elyse Greenspan
Analyst at Wells Fargo & Company

Okay. That's helpful. And then my my follow-up question. How do you see -- how is there a pipeline of transactions, right? You guys also did a good number of bolt-on deals to end the quarter and in terms of the AP pipeline, I know when you guys announced the deal, you highlighted the fact that there was very little overlap on pipelines. So would you expect, I guess, once the deal closes, at some point at the end of the Q1, I guess, that kind of just the quarterly level of M&A activity could pick up from bringing on that -- from bringing the 2 firms together.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

So Elyse, this is Pat. I'll answer that. I think, first of all, the -- we have to continue to operate these enterprises separately until we're closed. But we do know that there's very little overlap at all. and AssuredPartners has been very, very good at tuck-in acquisitions. And as you saw in our -- when we were making the announcement, there has not been that much overlap between things that we wanted to put on and things that they actually bought. So there -- we view their pipeline is very, very accretive to what we're doing and not a lot of overlap. And I think that's going to be fantastic. They've got a great team doing this stuff. We're impressed with what we've seen in due diligence and the like as to what they've done, what they've bought and the pricing they're getting for that. And I think you will see us increase substantially the number of deals. Now they're small deals. They're very good. They're very good at tuck-in bolt-ons and small privately held firms in and about many of the parts of the country that we're not in.

Elyse Greenspan
Analyst at Wells Fargo & Company

And then the 1.3 -- sorry, go ahead.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Sorry, go ahead.

Elyse Greenspan
Analyst at Wells Fargo & Company

I was just going to say the $1.3 billion from the green shoe, right, that wasn't contemplated, right? Because the financing was there without it. So is that just extra cash that you have for the pipeline, the capital that Doug was talking about in his comments?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. That's right.

Elyse Greenspan
Analyst at Wells Fargo & Company

Okay, thank you.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Thanks, Luis.

Operator

Our next question is from the line of Mark Hughes with Truist Securities. Please proceed with your questions.

Mark Hughes
Analyst at Truist Securities

Yeah, thank you. Good Afternoon. The guidance you gave for the first core contribution from AssuredPartners. Is there any seasonality there? Or is that just the timing of the deal?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Right now, we've assumed that's just the timing of the deal. We will -- they will have some seasonality, especially in their benefit business and then anything that might be a public entity type business might be skewed to July. So you'd see a little bit of seasonality, but what you see in there is a pure straight-line assumption of it.

Mark Hughes
Analyst at Truist Securities

And then, Pat, in the wholesale business, you gave a wholesale and reinsurance together, I think, up 9%. Any detail you can provide on wholesale observations on the NS market?

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Let me take a look, Mark.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes, I think I've got -- I think that you've got to look at our U.K. specialty at maybe around 7%. You look at U.S. specialty maybe on the 10%. Re is pretty small in the quarter. It's just not a big quarter for us. So if you look at those 2 numbers, we get -- maybe that gets us back to that 9% number there.

Mark Hughes
Analyst at Truist Securities

Understood, thank you.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks Mark.

Operator

The next question is from the line of David Motemaden with Evercore ISI. Please proceed with your question.

David Motemaden
Analyst at Evercore ISI

Hey, good evening. I had a question for Doug. Just trying to unpack the brokerage organic this quarter, and I don't want to nitpick too much, but you guys were looking for 8%. And I'm just wondering, so was the entire differential just the contingents and the life sales came back as expected, and it was just totally offset by the contingents. Just hoping you can unpack that a little bit.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes, you're right. The base commissioning fees at 7.8%, that business contingents and supplementals have been running kind of consistent with that together. So the the difference of the $7 million, I'd put it up in the upper 7% range somewhere pretty close to the base contingency. So you're right, you're spot on in your observation there.

David Motemaden
Analyst at Evercore ISI

Okay. Great. And then I want to follow up just on -- I guess I was surprised the RPC stayed at 5%, just given the property price was flat versus up 4% last quarter. So I'm wondering if maybe it's mix, but I'm wondering if there's anything else from sort of like an increased purchasing or buy up dynamic that you guys are observing as the property market as the property rate moderate here?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Well, we see that across that. I think we've always said it's spent a lot time we've talked about this as rates are going up, customers opt out of certain coverages, that might be by raising deductible or reducing limits on it, sometimes they'll prop some coverages. So as rates are -- if rates are -- remember, rates are still increasing. I think it's important for everybody to realize that kind of a cross board, we're still in a rate increase in environment. They are buying more insurance and reinsurance, you're seeing that from the carriers that they're buying more. And then the customers, they are buying more coverage on it. So they'll opt in.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Insurance to value is a big deal too. Much more pressure on ensuring to value.

David Motemaden
Analyst at Evercore ISI

Got it. And then maybe just to sneak one else in -- one other one in. Doug, I think you had said last call that the underlying brokerage business is running at like a 7% to 8% organic growth just on an underlying basis, but then the '25 range is in the 6% to 8% range. So I guess I'm wondering is that 6% just sort of conservatism? Like what sort of scenario would sort of get you guys out of that 7% to 8% range.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Well listen, I think right now that we said way back in October that next year is up a lot like this year, we're kind of in that mid-7% range somewhere this year. The range around it sitting and looking out over the next 11.5 months, I guess, that it's 6% to 8% is consistent with what we've said before. So we think we'd like to stick with that. I think our team is working pretty hard as always be better than the midpoint of the range, obviously. But the margin change, we'll see at wildfires do. We'll see a casualty reserves we'll do. We're still digesting that. I will say on the wildfires, maybe you know this. I still don't know how the extra living expense have been back in the wildfire estimates for the cat loss on that. And then you can't open up the news any day without somebody taking a casualty reserve shrink. So those things will cause carriers to take a really hard look at what they're doing with the rates. So within 2% is a pretty good guess as we look for the year. is it nice being in that range versus years ago when we were pretty excited about 1% or 2% organic growth.

David Motemaden
Analyst at Evercore ISI

Yeah. No, completely agree.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Thank you. Thanks, David.

Operator

Our next question is from the line of Katie Sakys with Autonomous Research. Please proceed with your questions.

Katie Sakys
Analyst at Autonomous Research

Hi. Thank you. Good evening. I guess my first question is thinking about the last call, I think, Doug, you had mentioned that you expect brokerage organic growth in 2025, split between the components to come from about half new business and then perhaps a quarter each to rate and exposure. Has your perspective on the components of that organic growth guide changed in the context of the AssuredPartners acquisition?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

No. Yes. Pat, summarized it pretty quickly than what we're still seeing happening right now.

Katie Sakys
Analyst at Autonomous Research

Okay. Sounds good. And then it looks like international retail brokerage growth kind of continues to cool off a little bit. How are you guys thinking about the environment for organic growth abroad this year versus what looks like perhaps a little bit more stable growth in the U.S.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Katie, I think you got to relook at that by geography. I mean there's parts of the world that are just really, really growing incredibly well. We've had our board meeting and did a deep dive into our Latin American businesses, not huge part of the whole overall enterprise, but incredibly nice growth there. And so there's -- it depends. Canada, a little bit of a slowdown this past quarter. We talked about that. But as you look across the whole patch, there's -- it's hard to put a finger on it, which is why we try to give you a guidance in terms of the overall how it should shake out. But we definitely have some geographies that are doing extremely well and just have continued future growth that is going to be fantastic.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Katie, one of the things I'm kind of looking at what we said this quarter versus what we said back in October, we didn't have an opportunity to update you in December. But U.K. retail especially still in high single digits. We said that it was 6% before. U.K. retail, I think we said 8% in this quarter, we're saying closer to 9%. And Canada may be the one that's poking its head out to you a little bit. We said it's more flattish, and now we're down 1 point or so. And then Australia and New Zealand, we said is about 10%, maybe in October, and we're still in the very high single digits on that. So I don't know if it's necessarily, it might be just that Canadian piece that pops out that's causing you to have that perspective.

Operator

The next question is from the line of Meyer Shields with KBW. Please proceed with your questions.

Meyer Shields
Analyst at KBW

Great, thanks. I like how everyone's blaming the Canadian. You mentioned, obviously, accurately that there's a ton of adverse development that we're seeing in general liability. And I was wondering whether there's any direct impact when you've got, I don't know, more frequent claims or more attorney involvement in terms of how Gallagher Bassett grows revenues.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, I mean, clearly, play activity helps us more. I mean there's no question about it. But when it comes to severity, we don't participate in our clients up or down in terms of severity. We do everything we can to manage the final outcome. And we contend and we believe we have the data and analytics to prove this. But if you hire Gallagher Basset, your outcomes, meaning your final settlements will be superior. And that does not mean that we're taking advantage of the climate. That means that we're handling the claim is actually better than you see in the general market. So it's -- if you've got some severity out there, and that creates frequency. Frequency definitely ups Gallagher Bassett. That's -- we get paid essentially on a per claim basis. As does economic growth because with economic growth comes more employment. And remember, most Gallagher Bassett's revenue is a good portion of them are workers' compensation driven.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. I think one of the things, all of those forces actually should cause Lions to look at Gallagher Bassett even more. The way we can do nurse case management, the way we have our managed care offering the way that we can understand where there are opportunities to use different physicians also understand the attorneys because we deal with them so often. So when claims get more complicated, it produces -- Gallagher Bassett actually can show more value to the customer. And I think that's the environment we're in. They're paying $12 billion, $13 billion, $14 billion of claims, and they get pretty good at that.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Remember, by and large, about $0.60 to $0.65 on every premium dollar turns into a claim. That's the function of the industry. We're seeing that, of course, in the West Coast. And so if you're going to have an impact on your costs, you better pay attention to that portion of the dollar that goes out the door in claims. Again, we think we do that at a level that's better than the competitors both TPAs and carriers.

Meyer Shields
Analyst at KBW

Okay. No, that's very helpful, very thorough. Switching gears, I was just looking for an update on the multiples for M&A because we've seen not only your acquisition of AssuredPartners, but a lot of the other big brokers out that have made big acquisitions and if seeks upwards, decelerates competition for tuck-ins?

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, this, of course, is all speculation on my point. But remember, and we try to share it pretty much every quarter what we are buying at. And you're not seeing our tuck-in acquisitions and the activity that we do on our smaller deals, and we're near the tree type levels of multiples that were -- that have been running up over the years. I do think that the AssuredPartners acquisition. We have a very smart seller. I think we were an opportunistic buyer. And I definitely think there's a signal there.

Operator

Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your questions.

Unidentified Participant
at Arthur J. Gallagher & Co.

And I apologize for asking another question on brokerage organic, but when you consider the 6% to 8% organic growth range, could you give us some insight into what level of renewal premium change you're thinking about within that because I'm wondering if you're assuming sort of some of the acceleration that you think may be happening in the casualty market or if you don't need that to achieve the 6% to 8%.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. I think that estimate is not assuming that there's tailwinds produced by the fires or the casualty strengthening. We've kind of seen that in the current environment we had, like we said earlier, we think that net new business over lost it will contribute about half of that number. We think that exposure will be about 1/4 of it and rate will be about 1/4. So there's no big assumption for rate in here, nor is there a really big assumption for the exposure unit growth. I mean this is just what we're seeing in our net new business wins right now. We're showing pretty well out there in the field. And here, go back to what we said before, when there's not as much chaos in the market, we get to show our tooling capabilities shine brighter in those environments because when it's chaotic in the environment and customers are listening to big rate increases, they're just trying to get their insurance place. They're already a bit stung by the fact that rates are up. We work very hard to keep those rates down for them. Now we'll be able to go in and show prospects just in a level playing field here when things aren't chaotic, you should be using our tools and capabilities to buy your insurance through us or let us buy your insurance for you using our capabilities. So this is an environment where we believe our new business and shine. We think our service offering is getting better and better every day. We have insights into who -- what clients might be a little shaky, let's get out and talk to them and make sure that we get the renewal put to bed soon. So I think that this is an environment where I think that our folks can shine with the tools and capabilities that they have.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

I would have killed in the past, as Doug alluded to, when we were talking about up 1, up to for premium rate growth as an environment, that would be nirvana 10 years ago. So I think it's a very strong place to be. Remember, our job is to mitigate that for our clients. But it's a great place for us to show exactly what Doug was saying, which is our capabilities, in particular, in the areas of data and analytics, which I want to remind the listeners you don't get a chance to listen to the smaller brokers that we're competing with on a quarterly basis. We're pulling away from them more and more with our capabilities. And these -- and clients, I'm talking middle market clients very much appreciate the ability to sit and talk with them about people like you buy this or you should have this type of limit because in our data, we see losses at this size. That capability is just getting -- it's getting more and more attention by the buying community, and it's differentiating us every single day to a greater level.

Unidentified Participant
at Arthur J. Gallagher & Co.

That makes sense. Pivoting to reinsurance brokerage, I just wanted to ask because I know you're our growth has been a good bit stronger than your 2 largest competitors in the reinsurance brokerage space for a number of years now. And Gallagher has a lower revenue base, but it doesn't seem like that would be the only driver of the outperformance. So I was hoping you could remind us what's driving Gallagher's ability to deliver what's been more like double-digit organic growth in reinsurance?

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, I think that it's just blocking and tackling. I think one of the things that we found there is it's a great sales team. They're backed up by terrific analytics, incredible capabilities in consulting on capital management, and there's no doubt being part of Gallagher has offered them some additional opportunities.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. I think that as they team up with our wholesalers, our program folks and our retailers. They get to see firsthand what's going on in the retail on the street. I think that helps them provide better insights to their -- the primary carriers. And I think that we're doing a terrific job of making them an integrated part of us, not just a unit within the holding company structure.

Unidentified Participant
at Arthur J. Gallagher & Co.

Great. My follow-up is on reinsurance as well, just the strong results. Just curious, maybe on mix, on reinsurance, do you potentially have a greater mix towards casualty or specialty Europe focused then that could be helping kind of the outlook given casualty pricing is accelerating?

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. We have a terrific casualty book of business. North American Casualty is a big part of our U.S. business, but we're probably a little underweighted on property maybe versus the others. So I think, yes, it's probably more casualty I don't exactly understand their book of business, but I think that what our perception is that we're under underweight on property.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Well, and also where is the pain right now, if it's a reinsurance buyer? It's casualty. I mean as we've talked about in these calls is and there's no question about it. That's the area that's got some pain, and our team is really, really good at that.

Unidentified Participant
at Arthur J. Gallagher & Co.

Got it. Maybe since it's not 6:15, I'll sneak one last one in. Just curious, health inflation for employers, at least at some of the stats we've seen, it's expected to rise '25 versus '24. Maybe you disagree with that. But does that provide any uplift to organic for employee benefits? Or I know there's a lot of building blocks for employee benefits...

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Every time we get -- we're one of the -- we are clearly a leader in our capabilities to consult manage and place health and welfare. And it's a huge problem for employers. And it's going up as it seems to never stop doing. And so there's all kinds of tools that you need to have in your toolbox to handle that. And we're very, very good at that. And by the way, we're extremely good at it in the commercial middle market, where I think there's maybe not as much competition, frankly.

Operator

Our final question is from Paul from Alex Scott with Barclays. Please proceed with your questions.

Unidentified Participant
at Arthur J. Gallagher & Co.

This is Justin on for Alex. Just kind of going back into the brokerage segment in the commercial middle market. Just wanted to ask, I understand it seems like 90% of the time, you guys are competing against independent brokers. I was just curious in light of sort of the large-scale acquisitions that's been taking place, whether or not you see sort of this 90% number to dwindle over time? And just when we think about '25 and ahead...

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

The AssuredPartners people are competing with those same independents in communities that we're not in today, which is only going to increase when you take a look at our our number of at bats are going to go up substantially because of AssuredPartners and 100% of those at bats that's not true. 95% of those are going to be against smaller players.

Douglas K. Howell
Corporate VP & CFO at Arthur J. Gallagher & Co.

Yes. I think the fragmented market of those 30,000 agents and brokers, and those are companies not necessarily those with a brokerage license. So we're competing against the other 29,950 brokers that are out there. So I mean, AssuredPartners will be absolutely there. It does help us go after those accounts that are in cities that we're not in. So this is -- we think it's a great 1 plus 1 can equal more than 2, for sure.

J. Patrick Gallagher, Jr.
Chairman of the Board and Chief Executive Officer at Arthur J. Gallagher & Co.

Thanks, Rob. I think we're ready to wrap up here, and I just have a quick comment, and that is thank you again for joining us this afternoon. As you all know, now we had a great fourth quarter to finish an excellent year of financial performance. A huge thank you goes out from this table to our 56,000 colleagues around the globe, it's your creativity, expertise and unwavering client focus that continue to set us apart. We look forward to speaking with the investment at our mid-March IR Day, and thank you all for being with us this evening.

Operator

This does conclude today's conference call. You may now disconnect your lines at this time.

Corporate Executives
  • J. Patrick Gallagher, Jr.
    Chairman of the Board and Chief Executive Officer
  • Douglas K. Howell
    Corporate VP & CFO
Analysts

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