Gallagher (AJG) Q1 2026 Earnings Transcript

DATE

April 30, 2026 at 5:15 p.m. ET

CALL PARTICIPANTS

• Chairman, President, and CEO — J. Gallagher
• Chief Financial Officer — Douglas Howell

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TAKEAWAYS

• Total Revenue Growth — Combined Brokerage and Risk Management segments posted 28% revenue growth, with 5% organic and 23% M&A-driven increase.
• Brokerage Revenue — Up 30%, with organic growth of 5%, supported by retail, property/casualty, wholesale, reinsurance, and benefits lines.
• Risk Management Revenue — Increased 14%, with 10% organic growth, reflecting strong client retention and new business.
• Supplementals and Contingents — Combined up nearly 10% for the Brokerage segment, reflecting higher contract renegotiations.
• Net Earnings and EBITDAC — Combined segments reported net earnings growth of 12% and adjusted EBITDAC growth of 18%.
• Margin Expansion — Brokerage segment achieved underlying margin expansion of 50 basis points, with a full-year outlook of 40-60 basis points improvement.
• Full-Year Organic Growth Outlook — Management expects 6% organic growth, consistent with prior communications.
• M&A Activity — Nine tuck-in mergers were completed, representing $60 million in estimated annualized revenue; over 40 term sheets representing ~$400 million are in pipeline.
• AssuredPartners Acquisition — Integration is “on plan without exception” eight months in, with targeted annualized run-rate synergies of $160 million by year-end and up to $300 million by early 2028.
• Share Repurchases — Company repurchased 1.4 million shares for approximately $310 million during the quarter, with no additional shares repurchased in the second quarter due to a quiet period.
• Cash Tax Savings — Company holds $655 million in tax credit carryovers and $11 billion in tax-deductible amortization, projected to keep cash taxes paid at approximately 10% of EBITDAC for the foreseeable future.
• Capital for M&A — Management estimates it might have close to $10 billion available over two years for further M&A activity, funded through cash, free cash flows, and investment-grade borrowing.
• Property Premiums — Global P/C retail property renewal premium change down 7%, with decreases more than offset by casualty and other line increases; excluding property, renewal premium change was +4%.
• Casualty Premiums — Casualty lines, including general liability, commercial auto, and umbrella, saw renewal premium increases of 4% overall, with higher increases in the U.S.
• E&S Market Trends — Excess & Surplus property is competitive, reflecting “pricing reset, not a demand issue,” while E&S casualty and professional lines posted mid- and low-single digit renewal premium increases.
• Reinsurance Segment — New business overcame rate headwinds, with property and specialty line rate decreases at 1/1 renewals; casualty pricing remained stable, while Japan-specific 4/1 renewals saw additional downward pricing pressure.
• Employee Benefits Demand — Steady demand noted across health, retirement, voluntary, executive benefits, and HR solutions, supported by “talent attraction and talent retention.” priorities.
• AI and Digitization — CEO J. Gallagher said, “AI strengthens, not replaces the broker and adviser model,” emphasizing that AI is enhancing operational excellence, client service, and productivity, and is already embedded in platforms and workflows.
• Exposure Growth — Internal data indicates clients’ exposure units (revenues, payrolls, headcount) are “still in positive territory,” supporting continued business growth.

SUMMARY

Arthur J. Gallagher & Co. (AJG +0.83%) reported high-double-digit top-line growth led by significant acquisition contributions and steady organic gains, with margin expansion and net earnings aligning with management’s stated expectations. The integration of AssuredPartners is tracking to plan, and pipeline activity signals continued momentum in both tuck-in M&A and synergy capture. Management highlighted the resilience and diversity of the business, noting strength in casualty, benefits, reinsurance, and Gallagher Bassett despite property pricing pressure. Extensive capital allocation capacity, robust tax assets, and strategic technology integration position the company to pursue further accretive transactions and operational advancements throughout the year.

• CFO Howell stated future M&A is supported by a combination of cash, free cash flows, and anticipated investment-grade debt, offering flexibility without share dilution pressure.
• Organic growth guidance by line suggests moderate acceleration in the second half of the year, with management citing strong new business pipeline and improved premiums in reinsurance, retail, bond, and specialty businesses as drivers.
• Property exposure declines are expected to persist but are projected by management to be partially mitigated by increased client coverage purchases and fee-based structures, which reduce dependency on rate movements.
• Tuck-in acquisition multiples are trending lower, with management attributing seller rationality and pricing discipline as contributors; this trend may create additional M&A value-arbitrage opportunities.
• AI-related specialty risk growth is noted as a future tailwind for E&S, though currently remains a small share of the submission pipeline but illustrative of the segment’s structural opportunity.

INDUSTRY GLOSSARY

• E&S (Excess & Surplus): Insurance segment specializing in difficult or unique risk placements outside standard admitted markets, commonly used for complex, specialty, or higher-risk exposures.
• RPC (Renewal Premium Change): The percentage change in premium rates upon policy renewal, accounting for both price movement and exposure adjustments.
• EBITDAC: Earnings before interest, taxes, depreciation, amortization, and corporate expenses; used internally by AJG to measure segment profitability and cash-flow generation.
• Tuck-in merger: Acquisition of a smaller business or agency integrated into an existing platform or operation, typically to enhance scale, reach, or capabilities in targeted markets or lines.

Full Conference Call Transcript

J. Gallagher: Thank you very much. Good afternoon, and thank you for joining us for our first quarter ’26 earnings call. On the call with me today is Doug Howell, our CFO; and other members of the management team. We had a terrific first quarter. For our brokerage — for our combined Brokerage and Risk Management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions, delivered revenue growth of 28% in the first quarter. Organic growth was 5%, and M&A contributed 23%, driven by strong results from AssuredPartners. On a segment basis, Brokerage revenues were up 30%, of which organic was 5%. We saw strong growth across retail, P/C, wholesale, reinsurance and benefits.

Our Risk Management segment, or Gallagher Bassett, posted revenues up 14%, of which organic was 10%. We saw excellent new business and strong client retention. And we continue to generate excellent profits. Our Brokerage and Risk Management segments combined reported net earnings growth of 12% and adjusted EBITDAC growth of 18%. This quarter marks 24 consecutive quarters of double-digit adjusted EBITDAC growth. And we had another quarter of solid underlying margin expansion, which Doug will break down for you in a few minutes. Today, I’ll touch on all 4 of our strategic pillars, growing organically, growing through mergers and acquisitions, improving our productivity and quality and our culture. First, organic growth.

Our client retention, new business win rates and client business activity continue to be tailwinds. And in today’s environment, insurance rates are still contributing to organic growth, but to a lesser extent than over the last few years. Carriers are continuing to behave rationally and looking to grow in lines and geographies where there’s an acceptable return, yet remaining disciplined by seeking rate increases where needed to generate an appropriate underwriting profit. Good loss experience accounts can typically see premium relief, while accounts with poor experience are seeing increases. Breaking this down by businesses. Within our global retail P/C businesses, the first quarter ’26 market environment is materially unchanged from the prior quarter.

Insurance renewal premium change, which includes both rate and exposure, continued to increase in the low single digits in the first quarter, with property decreases more than offset by increases across most casualty classes. By product line, we saw the following in our global P/C retail businesses: Property down 7% with rate pressure most pronounced in cat-exposed and larger risks. Professional lines, including D&O and cyber, up 2%; workers’ comp, up 2%; personal lines, up 4%; package up 2%; and casualty lines, which includes general liability, commercial auto, and umbrella, up 4% overall. Excluding property, renewal premium changes increased 4% in the quarter, with higher increases in the U.S. versus international markets.

We continue to see significant differences in renewal premiums by client size with our larger accounts driving much of the downward pressure in premiums. Our customers are opting in and buying more coverage as their prices decrease, whereas over the last few years, they were opting out of coverage when their prices were increasing. Within the U.S. excess and surplus market, we continue to see a bifurcated market. We’re seeing submarkets behaving differently after several years of a very strong hard market. E&S property, particularly cat-exposed risks, is the most competitive area right now. That reflects a pricing reset, not a demand issue.

Policy counts and submissions remain healthy and E&S continues to be the right solution for complex property risks. E&S casualty remains firm. Renewal premiums are up mid-single digits. Capacity is disciplined and demand is steady across general and excess liability as well as umbrella. E&S professional lines are largely stable with renewal premiums up low single digits and better underwriting discipline than in prior cycles. The fastest-growing part of E&S continues to come from emerging specialty risks such as data centers and AI-related infrastructure as well as other complex exposures. These risks don’t fit well in the admitted markets and represent a structural multiyear growth opportunity for E&S. Moving to reinsurance.

The market remains well capitalized and renewal activity continues to reflect ample capacity. In the first quarter, we saw strong growth across lines and across geographies with another excellent quarter of new business overcoming rate headwinds. At the 1/1 renewals, we saw rate decreases across property and specialty lines with lower layers holding up better than the top end of the reinsurance towers. Within casualty, pricing was broadly stable as most reinsurers remain cautious around U.S.-focused casualty risks given loss cost trends and prior year loss development. Outside the United States, additional capacity put some downward pressure on pricing in selected markets. The 4/1 renewals showed similar conditions with a bit more downward pricing pressure on the Japan-specific renewals.

Outside of Japan, we saw continued interest from carriers in managing earnings volatility and supporting growth through additional protection. Geopolitical developments, including the conflict in the Middle East, are impacting specific coverages such as marine war and political violence and terror, though it’s too early to assess any broader ultimate impact on reinsurance pricing. Today’s dynamic market is ideal for our reinsurance team to demonstrate our expertise, product knowledge and data-driven capabilities to ensure the best coverage for our clients. Turning to London Specialty. Similar to U.S. E&S market, pressure continues in North American cat-exposed property, while competition in D&O, professional lines, financial institutions and cyber is moderating. Related — war-related risks remain the clear exception.

Marine, aviation and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment of capacity. War cover remains available, but it requires careful structure and coordinated execution across markets. Our teams across London, the U.S. and our international network are working closely together to secure capacity under current market terms and help our clients to navigate this rapidly changing environment. Moving to employee benefits, which continues to perform very well. We’re seeing steady demand from employers across health, retirement, voluntary benefits, executive benefits, life and HR solutions. Our clients are still actively hiring and remain focused on talent attraction and talent retention.

And there is more and more demand for our experts to provide creative solutions to help our clients control their escalating benefits costs, driven by general procedures, innovative medical treatments and as well as prescription drugs, as clients compensate us based on our advice, advocacy, creative plan design and cost management strategies, all of which support both demand and retention across our benefits business. Last but not least, Gallagher Bassett posted another strong growth quarter. We continue to see strong new business and excellent client retention. The team is adding new products, new services and embracing new technology, including AI and machine learning to further improve the claims experience for our clients.

Gallagher Bassett is positioned for fantastic growth again in 2026. Next, let me provide you some comments on our view of the economy. The U.S. labor market continues to show strong demand for new workers with the number of job openings still ahead of the number of people looking for work. Our daily revenue indications have historically been a terrific indicator of economic activity. Our proprietary data from audits, endorsements and cancellations continues to show solid business activity through the first quarter and actually through yesterday. This data shows that exposure units such as revenues, payroll headcount or trucks on the road to name a few, are still in positive territory, and our clients’ businesses are continuing to grow.

So to wrap up my thoughts on organic growth prospects, today, pricing — property pricing is moderating. That’s well understood. But property is only one part of our very large and very diverse portfolio. Casualty, benefits, reinsurance and Gallagher Bassett are all strong, and that strength is broad-based across geographies, client sizes and products. In addition, our client exposure growth is solid. Our retention is stable, and we are seeing excellent new business wins, all positively contributing to our organic growth. The demand for our expertise continues to grow because clients value our advocacy, our analytics and our ability to navigate complexity.

This gives us confidence in the durability of our results and provides further confidence in our 2026 full year organic growth outlook of 6%. Now shifting to our second strategic pillar, mergers and acquisitions. During the first quarter, we completed 9 new tuck-in mergers, representing around $60 million of estimated annualized revenue. Looking at our pipeline, we have over 40 term sheets signed or being prepared, representing around $400 million of annualized revenues. For those new partners joining us, I’d like to extend a very warm welcome to the Gallagher family of professionals. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher.

As for the AssuredPartners acquisition, we are following our proven integration playbook developed from doing over 750 mergers over the last 20 years. We are on plan without exception. The cultural alignment has been exactly what we expected, a culture with a strong client-first mindset and a genuine excitement for leveraging our expertise, tools and capabilities. We are 8 months in, performance is terrific, and we are already better together. Let me move to our third strategic pillar to continuously improve our productivity and quality. We view AI, digitization and automation as a continuation of that long-standing strategy.

It builds on decades of work standardizing processes, centralizing our global data and improving execution, all to help our people provide the very best advice and service to our clients. At our March 17 Investor Day, we spent considerable time discussing how we were already deploying AI across Gallagher. I invite you to listen to this webcast still on our website. Let me summarize a few key points from our March commentary. First, we expect AI to be minimally disruptive when it comes to selling insurance, providing consulting services and managing claims. Our business is advisory-led, complex and relationship-driven. Second, AI actually should accelerate our growth.

AI enhances our ability to deliver faster, higher-quality advice and more tailored client solutions, improving our speed to market, win rates, retention and provides better client experiences. Third, operational change is not new to Gallagher. For more than 2 decades, we’ve standardized processes and centralized our proprietary data across the company. That foundation allows us to deploy AI today across P/C, claims, reinsurance benefits and mergers and acquisitions because we have embedded operational excellence into our DNA. We already have the brains and financial resources to quickly deploy AI. In our view, we’re ahead, and that advantage compounds over time. Fourth, AI is already deployed across many of our core platforms and workflows.

It helps our teams make better decisions and spend more time advising clients while continuing to raise productivity and quality. And finally, and most importantly, AI strengthens, not replaces the broker and adviser model. AI is another tool that strengthens how we serve clients. It does not change the fundamental nature of our business. AI makes every single one of our professionals better at what they already do by amplifying our expertise, our data and our market access. Let me wrap up by spending some time on our fourth strategic pillar, our culture. We are a growth culture company.

If you spend some time reading our mission statement and the 25 tenets of The Gallagher Way, you might come to realize that they are all really about supporting growth, but growing the right way, the collaborative way, the professional and respectful and ethical way, all the while holding ourselves accountable for execution and growing shareholder value. We are a long-term growth culture that recognizes we grow because of the relevance of our advice, our analytics and our ability to navigate complexity, not because where we are in an insurance pricing cycle. We’ve proven we can grow through any cycle, and this one is no different. Culture is also what allows us to scale.

As we grow organically and through mergers, we don’t change who we are. Our culture promotes welcoming new colleagues into a model that emphasizes collaboration, entrepreneurship and shared success, all supported by strong processes, data and tools. And importantly, culture is what makes our investments in talent, technology and AI work. Our people embrace change when it helps them better serve their clients, improve quality and deliver stronger results. So when we talk about Gallagher’s performance, our culture isn’t separate from the numbers. It’s embedded in them. Okay. An excellent quarter behind us, a terrific future ahead of us. I’ll stop now and turn it over to Doug to walk through the financial details. Doug?

Douglas Howell: All right. Thanks, Pat, and hello, everyone. Today, I’ll spend about 3 minutes flipping page by page through our earnings release and give some quick highlights. I’ll then spend about 5 minutes on the CFO commentary document we post on our website and then close with a minute on cash, M&A and capital management. Overall, the punchlines you’ll hear today, and you’ve probably already seen that in your review of our information, we are right in line and in many cases, better than what we forecasted in our March IR Day. Okay. Let’s go to the earnings release, Page 1. Just step back for a minute, adjusted revenues, EBITDAC and EPS, all up 30%.

You’ll get to those percentages when you remove from prior year numbers $143 million, that’s $0.41 of interest income we earned on the funds we are holding to buy AssuredPartners. You’ll read that in the footnote at the bottom of this page. That’s an amazing quarter and demonstrates our 4 strategic pillars are delivering terrific shareholder value. Moving next to Page 2. Brokerage organic at 5%, right in line with our March IR Day expectations. One call out here, supplementals and contingents combined up nearly 10%. As you’ve seen in the past, there can be some geography between those 2 lines, especially in first quarter as we renegotiate contracts to start a new year.

Then at the bottom of the page, you’ll see we had a solid start to the year for our tuck-in M&A program. Our two-pronged growth strategy combined, that’s organic and M&A, posted 28% total revenue growth this quarter for our Brokerage segment. That would be 33% if you remove the $143 million of interest income on the AP funds. That’s absolutely terrific. Moving to the top of page — moving to Page 3 and the top of Page 4.

As we discussed during our last few earnings and IR Day calls, current quarter percentages at the bottom of these tables are not really all that helpful when compared to prior — because prior year had that interest income from the AP funds I just highlighted. It really clouds comparability. So I think it’s better for me to defer comments on our margin until I get to Page 7 of the CFO commentary document. When I do, you’ll quickly see that our productivity and quality strategic pillar delivered strong underlying margin expansion this quarter, right in line with our March IR Day forecast.

Moving now to the bottom of Page 4, an excellent quarter for our Risk Management segment, Gallagher Bassett. Organic at 10% and M&A added another 2.5 points, bringing total reported revenue up 14% and adjusted revenue up 13% for this segment. This too shows the power of our 2-pronged growth strategies. So moving now to Page 5. Risk Management showed continuous compensation and operating expense ratio improvement, leading to an adjusted EBITDAC margin up 130 basis points. There is no noise in this segment from interest on funds held to buy AP.

So it’s very easy to see the excellent growth in our revenues, improvements in our productivity and our growth in our adjusted EBITDAC, all better than our IR Day commentary and forecast. Flipping to Page 6. The Corporate segment adjusted results were — in total, were pretty close to the midpoint of the range we provided during our March IR Day. So there’s no new news here. Last, on Page 7, about halfway down, you’ll read we repurchased about 1.4 million shares for approximately $310 million this quarter. All right. Let’s leave the earnings release and go now to the CFO commentary document. Starting on Page 3. Most items are very close to what we provided in March.

So just double check that these items are considered in your models. Going to Page 4. This is the new organic growth table we started providing last December. Here are the punchlines. First, we saw solid first quarter organic growth across each business and geography with each posting organic at or above our March IR date commentary. Next, we’ve now added our second quarter outlook and see similar performance for each of our businesses. These percentages incorporate all the information Pat just provided, such as net new business wins, customer buying behaviors, the rate environment and the economic landscape. These are our midpoint best estimates ground up as of today.

Third, same with our full year outlook, which has not changed from March. We post that and ’26 will be another excellent year of organic growth. Moving to Page 5, the investment income table. Three comments here. First, our ’26 forecasts reflect current FX rates and changes in fiduciary cash balances. Second, our forward estimates now assume future 25 basis point rate cut in September. Third, this is a helpful table to show you a full historical view of the amount of interest income we earned on the funds we are holding to buy AP.

And it’s a reminder as a heads up when you build your models, second quarter had $144 million of interest earned and then $76 million in the third quarter of ’25, which will again cause comparability noise throughout our results when we post our next 2 quarters’ results. Staying on Page 5, but shifting down to the rollover revenue table, which excludes AssuredPartners. Four quick comments here. First, the first quarter ’26 sub total of $126 million for Brokerage came in pretty close to our March estimate. Second, looking forward, the pinkish columns to the right include estimated ’26 revenues for brokerage M&A closed through yesterday. And of course, you’ll need to make a pick for future M&A also.

Third, one modeling heads up to make sure you adjust your prior year revenues for the divestiture and other line before you apply your organic growth assumption. And fourth, you’ll see the same information down below for our Risk Management segment. All right. Let’s move to Page 6, information on AssuredPartners. A few comments here. They’re mostly modeling helpers, and then I’ll add some qualitative comments at the end. First, remember that forecasted numbers we provide in this table are at the midpoint of our estimates. As we convert locations onto our systems, there could be some small movements between quarters and some additional small netting like we saw last quarter.

Second, the footnote there reminds you that noncash figures shown on this page, which reflect depreciation and earn-out payable are included within our estimates on Page 3. So please don’t double count. Third, this table does not include any revenue or expense synergies. So those would be incremental to the numbers you see here, and you would need to model them separately. The footnote says that we still see annualized run rate synergies of $160 million by the end of ’26 and then up to $300 million by early ’28. That said, more and more, I’m feeling there could be some additional upside to these numbers. Maybe I’ll have an update during our June IR Day.

Fourth, a reminder that you can use for modeling the second quarter ’26 column as is, but for third and fourth quarters, you should only add the delta between the pink numbers and the blue ’25 numbers. Fifth, as for financial performance, an excellent first quarter, which came in fairly close to our March IR Day estimates. Only a few small changes to our outlook for the rest of the year also. Qualitatively, our clients are happy and client retention is excellent. The integration plan is tracking to our expectations. Our teams are energized and coming together.

We’re having some terrific new business wins showing that we are indeed better together, and our employee and producer retention is strong and right at historical norms. All of this gives me confidence in our ’26 financial performance outlook. Moving now to Page 7, the Brokerage segment margin bridge. Favorable comments continue to come in that this picture is worth a thousand words. It’s very easy to see all the components that influence our margin change period-over-period. Let you quickly dig out that our productivity and quality efforts are delivering underlying margin expansion. You’ll see that on the second to the last line of the table. We had terrific expansion this quarter of 50 basis points.

And you’ll see to the far right, we’re still forecasting full year 40 to 60 basis points of underlying margin expansion. Both of those are right in line with what we had discussed during our March IR Day. And despite sounding like a broken record, worth another call out that the first line of this table shows you the impact of investment income earned on the funds we held to buy AP. That’s what will again cause the headline headache for the next 2 quarters. Then thankfully, it should be an easier compare. All right. Let’s move to Page 8, our Corporate segment.

You’ll see that our adjusted first quarter as well as our outlook for the rest of the year are very close to what we presented in March. Just 2 call-outs here. The upper right box shows you the changes in FX, which caused the corporate line to bounce around a bit. But remember, these unrealized gains and losses are noncash. Now look at the lower right box. This is new and a bit of housekeeping here. We removed the separate page that recapped our historical clean energy investment cash flows. This box tells the same story just shorter. It shows you that we had $655 million of tax credit carryovers that we will use over the next few years.

Second, it also shows you that we have about $11 billion of tax deductible amortization expense, which we will deduct in the future. Together, these 2 items are worth about $3.4 billion of cash tax savings, which gets you to the punchline we’ve added in this box. Our cash taxes paid will be around 10% of EBITDAC for the foreseeable future. You model that and you’ll get close. All right. Finally, a few comments on cash, capital management and M&A funding. When I look at available cash on hand, expected free cash flows and future investment-grade borrowings, over the next 2 years, we might have close to $10 billion to fund M&A before using any stock.

Our M&A pipeline remains strong and is full of targets at attractive multiples, which we are seeing coming down a bit. It still creates an immediate shareholder value through nice arbitrage. I mentioned earlier that in the first quarter, we repurchased approximately $310 million of our shares. We continue to believe our equity is woefully undervalued by the market, so this repurchase was opportunistic. But our priorities really haven’t changed. We’ll continue to invest in organic growth. We’ll remain active in mergers and acquisitions, staying consistent in our approach and disciplined in our pricing, and we will deploy excess capital in a way that maximizes long-term shareholder value. So those are my comments.

A great quarter to kick off what looks like could be another terrific year. Back to you, Pat.

J. Gallagher: Thanks, Doug. Operator, I think we’re ready for some questions.

Operator: [Operator Instructions] And our first question comes from the line of Charles Lederer from BMO Capital Markets.

Charles Lederer: I appreciate Pat’s comments on the strength outside of property lines. Just looking at Slide 4 of the CFO commentary, can you expand on what your expectations for the higher organic growth in Americas Retail in the second quarter? I guess it’s just a little surprising given the greater property mix in 2Q.

Douglas Howell: So the question you’re asking about, if I look here in the second quarter, we believe there’s 5% in our Americas Retail Brokerage segment. Is that what you’re looking at?

Charles Lederer: Yes.

Douglas Howell: Yes. All right. Fine. So if you really look at what last year, what happened is Canada actually had a slightly smaller quarter in the second quarter last year. So that’s why it gets it closer to that 5% number as we’re going forward here.

Charles Lederer: Got it. And then can you talk a little bit more about whether the M&A environment has changed over the last couple of months? And how much of that’s factoring into your buyback decisions? And can you share how much you’ve repurchased so far in the second quarter?

Douglas Howell: So the question here is what’s under that. We’ve been in a quiet period the entire second quarter. So we have not repurchased any shares thus far this quarter. As for the environment on M&A, multiples are coming down. We are seeing that. We’re seeing that sellers are becoming a little bit more rational on that. First quarter is historically always our smallest quarter, so you can’t really read much into that. We typically have a wrap up to the — a little bit more to the end of the year. We’ll show more in the later quarters.

And then finally, I think that when it comes to balancing M&A versus share repurchases, if there’s a terrific opportunity out there right in the middle of the fairway that makes us better together that is a long-term buy, we still think there’s value in that number over our shares. So it’s — but it’s got to be at the right multiple in today’s world.

Operator: And our next question comes from the line of Elyse Greenspan from Wells Fargo.

Elyse Greenspan: My first question is on the core commission and fee organic growth, the 4% in the quarter. In your minds, does that represent a floor?

Douglas Howell: I’m sorry, does that make — Elyse, I just didn’t hear you, say it again.

J. Gallagher: Does it represent a floor?

Elyse Greenspan: Yes, like a floor to where you see the growth from here, the 4%, yes.

J. Gallagher: Yes. As we look out for — at this point in time, as we said in our prepared remarks, as we look forward, we see a pretty good year coming at us.

Elyse Greenspan: And then my second question, right, you guys obviously provide a lot of guidance and disclosure by line, right? So it looks like organic growth, right, in brokerage, you’re looking 4.5% in the Q1, 5% you’re looking for in the second quarter, and you left the guide for 5.5% for the full year. So that does imply a pickup in the back half. Doug, I think last we spoke, you were just talking about incremental reinsurance demand as being somewhat of a driver there. So I mean, I know it’s being a little nitpicky relative to half or maybe 1 point in the back half of the year.

But is that still your expectation that, that’s what will drive improving organic growth in the second half of the year relative to Q1 and Q2?

Douglas Howell: Yes. Let me give you a couple of reasons why I think that — we have a really successful new business pipeline right now, and we’re seeing that in reinsurance, retail, bond and specialty and then our — really in our kind of captive business right now. We’ve also done a good job of getting in raises on our fee accounts. So that’s a little bit of a tailwind. I think that we’re going to see some pretty strong growth in supplements and contingents for the rest of the year. You’ve seen the numbers the carriers are posting that should bode favorably for us.

And then I think there’s — just in general, we’re seeing some pretty good success that’s going to push through a property market. Now property sells off over the next 60 days in a big way, that’s going to be a whole different discussion. But it’s in that 5% range. So it’s plus or minus a little bit on that. I think we’re in great shape.

Elyse Greenspan: And this guidance assumes consistent property declines for the rest of the year relative — property price declines relative to what you saw in the Q1?

Douglas Howell: That’s correct.

Operator: And our next question comes from the line of Dean Criscitiello from Wolfe Research.

Dean Criscitiello: So just sticking on organic growth real quick. Your full year estimate for the specialty and U.S. wholesale growth is 6%, which implies sort of a pickup of organic in the back half of the year. So I was sort of curious whether your expectations under — because of the pricing environment is obviously not great sort of your expectations as to why you think it will pick up?

Douglas Howell: All right. So the question is — here’s the thing. Property is going to take its biggest hole in the second quarter. So I think in the second half of the year, we’ve got a pretty good view on property right now, at least — we’re a month into it right now. We’ll see what happens in the May and June renewals. We’ve got a good eye towards that. For the rest of the year, we just don’t have that much property stress.

Dean Criscitiello: Got it. And then my follow-up, I noticed in the CFO commentary that the multiples that you list for tuck-in acquisitions, the lower end of that range came down a bit. So I was curious maybe if you could add a little bit more color of what you’re seeing in the market on multiples and kind of why you think that is?

Douglas Howell: Yes, that’s just what we’re seeing right now. I think the term sheets that we’ve got in the hopper are they’re recognizing that the multiples are coming down a little bit. So yes, yes, we did put that on Page 3 of the CFO commentary, and I may mention it when I was wrapping up on cash. So yes, you’re reading that the right way.

J. Gallagher: And why? Look at our stock price. Our multiple is down. Pretty simple. We’re not here to dilute our shareholders.

Operator: And our next question comes from the line of David Motemaden from Evercore ISI.

David Motemaden: Just one question on the — I believe, Pat, you had talked about insurance rates still contributing to growth in the quarter, but just to a lesser extent. You guys in the past, you guys have broken out some of the different components of organic between net new and then like price and exposure growth. So just wondering if you could unpack that maybe within this quarter and how you’re thinking about that within the outlook for the 5.5% for the full year?

Douglas Howell: Listen, I think the way to look at it right now is new business will exceed lost business. Customers will opt in, which will come through as rate and exposure growth as exposures grow, our customers’ business. So let’s say it’s a 6% year. We’re probably in a period right now, we’re going to get net-net-net from rate 1%, 1.5%. When you think about new business forward thrust, we’ll probably get 2.5%. And then you’re probably going to get exposure growth in there of another 1.5 points, something like that. I think that might add up. So I’m not saying it’s 1/3, 1/3, 1/3. I think that rate might be on the lowest end of that growth piece.

So it’s going to be net new business wins and then our clients’ exposure units growth and our clients opting in and buying more insurance. And then rate will be what it is.

David Motemaden: Got it. And sorry about that. And then just on the property pricing, maybe just thinking about the down 7% for this — or the down 7% RPC. If that were to get down to like, let’s say, down 10% or 11%, how — could you help sensitize the organic growth to that sort of RPC movement?

Douglas Howell: All right. I’d have to think about that here a second and do the mental math. It might put a point of strain overall for a full year on it, something like that. But that might have to go to closer to 12% or 13%. It might almost have to be a double on that. Remember, a lot of our property also is done on a fee, some of our big property schedules. So that mitigates that a little bit. That’s why the impact of the floor completely falling out of it from what we can see right now, it may be 1 point for the full year. I mean…

J. Gallagher: And rates are approaching a pretty low level right now. In some instances, we’re seeing rates approaching 2017 pricing. So I don’t think there’s a structural big time jump further beyond that, could be.

Douglas Howell: And again, just rates are one thing. But remember, our revenues are based on exposures, opting in, growing risk profile. Casualty is still tough. I know your question had about property, but it’s not just rate for us. It is highly sensitive also to exposures, which are growing right now.

Operator: And our next question comes from the line of Meyer Shields with KBW.

Unknown Analyst: This is [ Jing ] on for Meyer. My first question is on the E&S. You call out the data center and AI-related infrastructure as the fastest-growing part of the E&S market. Could you kind of help us size kind of what percentage of the submission today is kind of related to that and going forward?

Douglas Howell: Yes. As a percentage, it’s a very small item. It’s not anecdotal, but it is also illustrative that specialty market comes in 5 different type of buckets. So you got to think about these as a headwind in that — as a tailwind in that vertical that as these things come online, they’re going to have to go to the specialty and E&S market in order to get that cover. In terms of what we’re doing on it, boy, we’ve got a terrific practice in that. I think that the way we’re coming together, the way we’ve got a bespoke model that brings the right experts for the various covers that go along with the data center is pretty remarkable.

J. Gallagher: And let’s not get it wrong. I mean there’s great growth opportunities for us across the whole data center effort. And as Doug said, the E&S market is responding to that. It takes world markets to complete those. It takes great expertise, which we have. But as a percentage of the overall market, this is not earth shattering.

Unknown Analyst: Okay. Got you. Very helpful. My second question is on the Middle East conflict. I think you flagged a significant repricing and more selective capacity deployment in marine war, political violence, terror, et cetera. For Gallagher specifically, is this a net organic tailwind given your London specialty and reinsurance positioning?

J. Gallagher: Yes, it is. And we’ve got to be very sensitive about that. First of all, just because war rates are there and the cover is available, doesn’t mean ships are sailing. You got a very big caution light on making sure that the crews are safe and shippers are not necessarily going to take the risk. But the market is available. It takes a lot of skill and a lot of diligence to put these together. But in the end, when they bind, yes, they’re a net positive.

Unknown Analyst: Got it. And just one quick follow-up. Does the capacity constraint like placement difficulties that limit your ability to capture that or…

J. Gallagher: No, not at the present time.

Operator: And our next question comes from the line of Yaron Kinar from Mizuho.

Yaron Kinar: One question for me. The AssuredPartners estimates, I see revenues down a little bit again and margins up a tad more than that. Is that the same real estate moves that we had talked about in the March 17 investor meeting? Or is there something else driving those?

Douglas Howell: All right. So that’s a great question. First of all, remember, those revenue numbers are a midpoint of our range. They do move around a little bit as we put them on to our system because we get deeper insights to the source of revenues. For instance, last quarter, we’re going to have some netting. And the old accounting on AssuredPartners, sometimes they put a — some branches would put a co-broker as an expense versus a contra revenue like we do. So that will cause that number to move around. It did move, what, $10 million this quarter on an $800-some million estimate. So it’s a 1% kind of variance.

The reason why this isn’t an issue for us is that we purchased cash flow. And that’s the great thing about the AssuredPartners acquisition. There was no questions in their cash flow. The gross up of the revenues or the — and expenses in some branches and the netting in other branches was an irrelevancy — it was irrelevant to us because that’s why you see the EBITDAC estimates holding right up to what we’re talking about. We purchased that cash flow. We call it EBITDAC, and it’s delivered right where it’d be.

There’s going to be a percentage point bounce around a little bit on the revenue numbers as we completely sort out the netting of co-broker revenues branch by branch. And we’re going to — we put a ton of branches up just this last weekend, and I think we’re doing a — we’re in terrific shape of getting that rolled on to our books in the next 15 months.

Yaron Kinar: Got it. And those bounces between the line items, that will no longer be the case once the business rolls over into organic curve, I think.

Douglas Howell: Yes, that’s right. Yes. I mean once we have a better insight into whether these numbers are coming to us gross or net. Remember, they’re all on individual agency systems. When you do it on a client-by-client basis, you’ll see whether or not there’s a co-broker number going through the operating expense. And again, the cash flows are the same. It’s just the accounting.

Operator: And our next question comes from the line of Mark Hughes with Truist Securities.

Mark Hughes: A number of your competitors or a couple of your competitors have talked about challenges with new business, and it sounds like you’re seeing things go pretty well. Is there any reason why, say, at this point in the cycle with property down and maybe a little more pressure on casualty perhaps, why would new business be more difficult? And again, just from a kind of a broad cyclical perspective or anything else that might be contributing to that?

J. Gallagher: So Mark, we look at that closely. And a couple of things you might remember from discussions in the past. We have found over the last few years that if we digitize the relationship with the client, it will actually increase our retention by a full point. Now that means it takes it from something like 94.5% to 95.5%. I would contend that, that’s pretty close to renewing 100% of eligible, not measured, not for sure, but darn close. Now those same tools are increasing our hit ratio. So I can tell you that if we take our Gallagher Drive product out in a prospect call, when I started selling 50 years ago, my hit ratio was about 32%.

Before we got our tools going over the last decade, our hit ratio was about 32%. So it was all about getting at bats. With our tools now, we know this statistically, we’re approaching 45% hit ratios when, in fact, we use the tools. And we have a number of them. It’s not just Gallagher Drive. This week at RIMS, we’ll be announcing Blueprint, which is all about improving the risk and insurability of our clients, making their profile better. Our reinsurance people have got a workbench product that uses AI to show clients all kinds of different approaches, et cetera, et cetera. These tools, we’re spending hundreds of millions of dollars, and they’re really getting traction.

And I think that is a differentiator. It’s a differentiator, especially when you remember that 90% of the time, when we go out to compete, we’re competing with somebody substantially smaller than we are. And they all walk in and go, well, we’ve got AI. Look at our ChatGPT. That’s not the point. Let us just show you what we do with your risk profile, which we can now categorize numerically that says, as you exist today, you score on our profile 65. That’s not great. But if you work with us on loss control, on improving your risk profile, on the things you need to do, we can take that, we think, to 87.

Now that translates directly to an improved position in the marketplace, better pricing, which frankly, today is easier to get and bigger orders. So our hit ratio is increasing. We’ve got a lot of at bats, and I feel really good about our new business.

Mark Hughes: Excellent. Is there any kind of structural or cyclical reason why putting your advantages to the side, it might be harder to sign up new business in this kind of environment since prices are going down, it’s harder to tempt people away or easier perhaps because you can offer lower pricing?

J. Gallagher: No, I think it’s — frankly, it’s interesting. I’ve said before, the brokerage business is a tough business. You’ve got to go out and convince somebody to leave somebody they’re happy with. And that’s difficult. And it’s a very strong relationship business. The reason they’re with people is they like them and they trust them. We are trusted advisers. So we have to go and make a very strong case for the fact that they benefit their shareholders, most of the time, their family by making a move to Gallagher. And we’re just getting stronger and stronger at that. So it’s not easier for sure when there’s a softer market because there’s less pain.

But at the same time, I think we’ve got confidence in the step of our producers that if they can get a shot at something, they’ve got a pretty darn good chance of writing it. Operator, I think that’s our last question. So let me just make a few comments here to wrap up. Everyone that’s on the call, thank you for joining us this afternoon. As you can tell, I remain extremely confident in where Gallagher is headed. Our strategy is consistent. Our execution is strong, and our culture continues to differentiate us. To more than the 72,000 colleagues around the world, thank you. We’ve had a great quarter.

Your talent and dedication are what makes this company great, and that is the Gallagher Way. Thank all of you for being on, and have a great evening.

Operator: Thank you. And with that, ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation. You may now disconnect your lines at this time, and have a wonderful rest of your day.