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?
