Arthur J. Gallagher & Co. Q3 2026 Earnings Conference Call - ARTHUR J GALLAGHER CO

Good afternoon, and welcome to Arthur J. Gallagher and Company's third quarter 2026 earnings conference call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. 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 meanings of the securities laws. The company does not assume any obligation to update 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-lookings statements and risk factors sections contained in the company's most recent 10-K, 10-Q, and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of 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 Jay Patrick Gallagher jr. chairman and CEO of Arthur Jay Gallaghar and company mr. Gallaghe you may begin thank you good afternoon thank you for joining us for our third quarter 26 earnings call on the call through today is Doug Hall our CFO and other members of our management team we had an outstanding third quarter. Our team delivered strong revenue growth and excellent profitability. For our combined brokerage and risk management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions, delivered total revenue growth of 18% in the third quarter Organic growth was also strong at 5% reflecting excellent new business, strong retention, positive exposure growth, and the diversity of our business. We continue to generate outstanding profits. Net earnings grew 25% and adjusted EBITDA also grew 25%. That marks 26 consecutive quarters of double-digit adjusted EBIDAC growth, along with another quarter of margin expansion. Doug will break that down for you in a few minutes. On a segment basis, brokerage revenues were up 19%, of which organic was 5%. We saw excellent growth across our retail, PC, wholesale, and reinsurance businesses. We're now more than a year into the Assured Partners combination. The business is living up to our high expectations. Client retention remains strong, and the teams are working very well together. Our risk management segment, Gallagher Bassett, posted revenue growth of 14%, which includes organic of 10%, driven by excellent new business and strong client retention. Our consistent top and bottom line growth is driven by the four strategic pillars that have guided Gallagher for decades. Growing organically, growing through M&A, improving our productivity and quality, and maintaining our culture. I'll comment on each of these. First, organic growth. We have a diversified revenue model, but common across that are our client retention remains strong, Their business is excellent, and our clients' underlying business activity continues to be positive. It is well known that insurance rates are currently contributing less to growth than they have over the past several years. Caught about a point of organic growth today is tied to rates. This reinforces that rates are just one part of the equation. The bigger drivers of organic wealth continue to be new business, strong retention, exposure growth, as well as the diversity of our model across PC, benefits, reinsurance, and claims. So this shows our business performs well through a wide range of economic, interest rate, and insurance pricing environments. And we believe our diversified model and breadth of capabilities position us well to continue growing as the market conditions evolve. We're also benefiting from favorable macro tailwinds. The need for insurance is growing around the world, and risks are becoming more complex, thus requiring broader capabilities and more sophisticated solutions. Think about construction, infrastructure, energy, and data centers, as well as the growing need for clients to understand, mitigate, and ensure emerging risks from AI, just to name a few examples. These are the areas where clients need more advice and deeper expertise. that plays directly to Gallagher's advisory strengths and creates a tailwind for durable, organic growth. Let me go back to rates for a few minutes. Overall, we continue to see a very segmented PC market. Property is competitive, casually varies considerably by line and account, and there's plenty of capacity looking for attractive risks. Carriers want to grow, but they still need the right risks at the right returns. And for us, that creates opportunities to help clients navigate more choices and find the right solutions. Let me break this down by business. I'll start with our global retail PC business. Property remains competitive, with renewal premiums declining 6% compared with down 10% in the second quarter. As we discussed in September, that sequential improvement largely reflects the mix in seasonality of renewals rather than a change in the underlying property market. However, casualty remained firmer overall. Even with competition slightly increasing, conditions still varied considerably by line, account, and geography. In the third quarter, casualty renewal premiums, which includes general liability, commercial auto, and umbrella, were up 4% overall. Professional lines, including D&O and cyber, were at 2%. Workers' comp was up 1%, personal lines was up 3%, and package was also up 3%. 3%. Excluding property, renewal premium changes increased 3% in the third quarter, with higher increases in the U.S. versus international markets. And it's important to remember, premium changes in Gallagher's revenues do not move one for one. Renewal premium changes include exposures, changes in limits, coverage, and mix, not just rate. In other words, as property pricing eases, we're seeing clients opting in and using the saving to buy back coverage, increase limits, or improve structure after several years of opting out and making difficult trade-offs. They're also revisiting how much risk they retain, what they transfer, and how they structure their overall programs, and that makes the value of our advice, advocacy, and market access even more important. In the U.S., excess and surplus property remains very competitive, particularly cat-exposed property. But lower pricing doesn't necessarily mean the business leaves E&S. Rates are clearly down, but for us, our teams continue to win new business, helping to offset rate decline. Within casualty, capacity is increasing, but loss costs remain an important consideration. So conditions vary by line and risk. In this case, we continue to see tailwinds, rate tailwind, and strong growth in casualty. In our renewal book, we are not seeing any meaningful movement back to the admitted market. We're seeing new business still using the E&S market at levels broadly consistent with what we saw over the last couple of years. This shows that it's a different marketplace today. For us, the E & S market is here to stay. It provides important capacity and deep expertise with flexibility on terms and creative structures. All that is critical to delivering customized solutions to our customers. We're seeing a similar story in London especially. Competitive North American cat property has been more than offset by certain marine, aviation and political violence risks. These risks remain more challenging and they require careful structure and coordinated execution across markets. In reinsurance, the market has plenty of capacity. Property cat pricing remains competitive while casualty is more nuanced given lost cost trends. This is another example where price is only one part of the story. New business, the amount of protection clients buy, and how they structure their programs all matter. Our expert capabilities across facultative, casualty, life, and capital advisory give Gallagher-Reed multiple ways to grow. Moving to employee benefits, we've seen solid organic growth in our core health and welfare business so far this year, but in the third quarter, however, a few larger consulting projects were pushed out as clients focused on controlling rapidly rising medical and prescription costs. Employers still want competitive benefits to attract and retain people, but managing those rapidly rising costs is their immediate priority. That's where our people really help, working side by side with clients to manage costs and keep their benefits competitive. Let me turn to Gallagher Bassett. It was another terrific quarter with organic growth of 10% driven by excellent new business and strong client retention. Our investments in GB are paying off in both growth and margins. Clients are benefiting from our expanded capabilities, deeper data, and more robust technology. And each of these improves our advice and service and helps drive better claim outcomes. Those investments, together with the depth and experience of our people, continue to strengthen GB's competitive position. With a good pipeline of opportunities, we feel terrific about where the business is positioned. Now a quick comment on what we're seeing in the economy. Our daily revenue indications from our clients' underlying insurance activity, such as audits, endorsements, and cancellations, have historically given us a good and practically real-time window into broader economic conditions. When I look at yesterday's report, those indicators continue to be nicely positive, pointing to solid business activity and steady underlying exposure growth. So to wrap up my thoughts on organic growth, property pricing is moderating, and that's well understood. The property is only one part of our very large and very diverse business. The tension remains strong, the business is excellent, and client activity continues to be positive. And as pricing changes, clients are buying more coverage, increasing limits, lowering deductibles, and turning to us for advice on how to structure their risk programs. Those are bigger drivers of organic growth, even as pricing continues to change. We also have a very diverse business. Our growth is not tied to one product, one geography, or one client segment, and we have many ways to grow across PC, benefits, reinsurance, and claims. We are large, yet we still have very little market share. We operate in an industry where demand for advice, expertise, and risk solutions continues to expand when i look forward i remain confident in our 2026 full year organic growth outlook of approximately six percent for our combined brokerage and risk management segments and looking to 2027 we see many of the same drivers strong new business excellent client retention positive exposure growth and our diversified business mix those support another year of strong organic growth now shifting to our second strategic pillar mergers and acquisitions we continue to see good opportunities and as always we're staying disciplined on strategic fit culture valuation and returns during the third quarter we completed five new tuck-in acquisitions representing approximately 100 million dollars of estimated annualized revenue that brings us to 21 so far this year with approximately 225 million of estimated annualized revenue our pipeline remains active with over 30 term sheets signed or being prepared representing around 300 million dollars of annualized revenues and these mergers continue to add terrific people and capabilities across our businesses and geographies assured partners woodrow sawyer and dozens of others that have joined us are great examples of that strategy at work we're connecting teams sharing capabilities and bringing gallagher's tools data and expertise across the combined team and in turn these mergers accelerate our opportunities for future organic growth as we become better together to all of our new merger partners I'd like to extend a very warm welcome to the Gallagher family of performance turn to our third strategic pillar continuously improving our productivity and quality for more than two decades we've been focused on improving productivity and Quality through standardized workflows and a common data and digital strategy across the company and building out our centers of excellence. And today, our centers of excellence are 20,000 colleagues strong. And our goal has remained the same. Reduce repetitive work, improve quality, and give our people more time to serve and advise clients. AI and automation helps to accelerate that journey and helps us capitalize on our scale. We'll continue to invest where it strengthens client service and growth while improving efficiency and margins over time. Let me wrap up with our fourth strategic pillar, our culture. We're a team-first company. Our people help each other, share their expertise, and work together to do the right thing for our clients. That's what makes Gallagher special. As we grow, that matters even more. We're bringing new colleagues into Gallaguer, giving them more people, more expertise, and more capabilities to help their clients and win new business. The 25 tenets of the Gallagther way guide how we work and how we treat one another. It's about serving our clients, supporting each other, and growing together. That's the Gallagher way. So another outstanding quarter behind us. Our strategy is working, our team is executing, and the opportunities ahead of Gallaguer have never been greater. I'll stop now and turn it over to Doug to walk through the financial details. Doug? Thanks, Pat, and hello, everyone. We had a fantastic quarter. Nearly every metric was at or better than in the outlook we provided at our September Investor Day. Incredible total revenue growth, strong organic growth, excellent margin expansion, and terrific earnings growth. So let's go to page one of the earnings release. Our two-pronged revenue growth strategy continued to deliver. When you do the math, you'll see our combined brokerage and risk management segments posted adjusted revenue growth of 17%, adjusted EBITDA growth of 25%, and adjusted EPS growth of 26%. Then it gets even better when you levelize to remove the $76 million of interest income we earned in the third quarter 25 on the funds we are holding to buy Assured Partners. On that basis, adjusted revenues were up 20%, adjusted EBT grew 34%, adjusted EPF grew 37%, and adjusted EBITDA per share grew 35%. Like I said earlier, in a word, it's incredible. Flipping to page two, again, levelizing for the interest income earned on the funds held to buy AP for our combined brokerage and risk management segments, nine-month adjusted revenues were up 27%. Adjusted EBITD grew 32%. Adjusting EPS grew 34%, and adjusted EBT per share grew 33%. So the strength we're seeing isn't just a one-quarter story. I'll call it a fantastic nine months, too. So let's move to page three. Brokerage organic growth was at 5% in the third quarter, right in line with our September IR day forecast and a strong result in a competitive pricing environment. We posted solid organic growth in our base commissions and fees, plus another strong quarter of combined supplemental and contingent revenue growth. Moving to the brokerage margin table at the top of page 5, our adjusted EBITDA margin was 35.3% in the third quarter. At the upper end of the range, we noted on our September IR day. Headline margin expansion of 200 basis points, and the underlying expansion story is really terrific. I'll unpack that a little bit more when we get to page 7 of the CFO commentary document. So let's move now to the bottom of page five. Risk management organic growth was 10% in the third quarter, again, right in line with our September IR date forecast. It's another excellent quarter, reflecting strong new business, excellent client retention, and continued momentum across Gallagher Bassett. When you flip over to page six, risk management third quarter adjusted EBITDA grew 17%, with margin landing at 22.8%, up 90 basis points over last year. That reflects strong organic growth and continued operating efficiencies. Looking ahead, we see fourth quarter and full year 26 adjusted EBITDA margin again north of 22%. That would cap off another very strong year for Gallagher Bassett. Flipping now to the corporate segment on page 7, not really much here. Adjusted corporate results were a bit better than our September investor day outlook, but that's primarily because the non-cash unrealized FX loss came in smaller than estimated. When you turn to page 7, about halfway down, you'll read that we repurchased about 400,000 shares for approximately $100 million in the third quarter. That brings repurchases to about $580 million through September 30. Okay, let's leave the earnings release and turn to the CFO commentary document. This document includes details that can meaningfully affect your models, so I'd encourage you to give it a careful look. Starting on page three, most third quarter items came in very close to what we provided in September. As you model the fourth quarter, please consider the FX impact and non-cash expenses as these have been updated to reflect the latest exchange rates. Turning to page four, a few business level organic growth highlights, then the outlook. Third quarter brokerage organic was 5%, meeting our September midpoint estimate. a few business-level call-outs. Reinsurance growth was 7%, reflecting another quarter of strong new business and retention, more than overcoming the competitive pricing environment. Our UK and EMEA businesses had a great quarter, which was somewhat benefited from war risk premiums. Benefits did come in a bit below our September forecast. Most of that reflects a contingent commission true-up and the timing of several consulting projects that Pat mentioned earlier. And admittedly, little relates to some rounding in the percentages. Underlying core health and welfare growth remained solid and in line with our expectations. And then again, you'll see on this page another outstanding quarter for Gallagher Bassett's third quarter coming in at 10% organic growth. So moving right on this stage, our outlook, we continue to see fourth quarter and full year 26 brokerage organic growth of around 5%. And it's worth a quick reminder of what we discussed in September at our IR day. Fourth quarter brokerage organic will include AP for the first time. The math behind that inclusion gives you roughly only 20 to 25 basis points of headwind. So that's another really good story here. And our early view of 27 is also encouraging. Our early planning indicates legacy brokerage, organic growth could look a lot like 26. And it's also indicating that our early successes of being better together, the roll-in of AP is looking like maybe only impacting that by about 40 to 50 basis points for the full year 27. And as I provide all this information, please know we're assuming broadly similar conditions, our market conditions in 27 as we saw in 26. And then one other soundbite here. Improving AAP Assured Partners' base organic growth was not and is still not included in our synergy assumptions. So progress towards Gallagher growth levels over the coming year to two years would represent additional upside. Moving down a few lines of the risk management segment, you'll see our outlook remains strong. A 9% organic year would be another impressive result for Gallagher Bassett and reflect the momentum from our continued investments in the business. As for 27, our early look at the pipeline suggests the momentum should continue. So 27 also could look a lot like this year for Galligher Basset. Moving to the investment income table at the top of page 5, our fourth quarter investment income estimates reflect current exchange rates, estimated fiduciary cash balances, and the September rate increase. And staying on this page, but shifting down to the rollover revenue table, third quarter rolloVER revenues came in pretty close to our estimates provided in September. For the fourth quarter, acquisitions closed through yesterday could add about $65 million to brokerage revenue and about $5 million to risk management revenues. You also need to make a pick for future M&A. However, realize we're already well into the quarter, so practically speaking, that fourth quarter number shouldn't meaningfully increase all that much. This seems to be another place for the closer look in your models. And finally, as a reminder, fifth line up from the bottom. Please remember to adjust the prior year revenue base for this divestiture and other line before applying your fourth quarter organic growth assumption. Let's turn over to talk about assured partners on page six. We discussed in our last few investor days that integration is progressing very well. So there's no need to repeat today, other than to add that all back office systems are integrated and up and running. And by year end, close to half of AP's revenues will be up and run in their designated agency management system. That's great work by the team. So just a few call outs from this page. AP did deliver $285 million of adjusted EBITDA in the quarter. That is right in line with our September estimate. We remain on track for $160 million of annualized run rate synergies by year in 26, and that goes up to $325 million by early 2028. And just one modeling helper here. When I get to page seven in a second, we give you our estimated fourth quarter margin expansion from AP synergies. So don't, again, add synergies from this page. If you do that, you'll double count. So let's go now to page 7. this really shows the power of our model when it comes to our margins. First, underlying brokerage margins expanded 60 basis points in the quarter. That's at the top end of our September range. That's our vigilant work on process standardization, greater use of our centers of excellence, deploying technology, and other productivity initiatives, all continuing to show up in our underlying results practically every quarter for the last five or more years. Second, AP added another 310 points of margin lift in the quarter. First line shows 220 basis points related to AP pre-synergies. Understand that 180 basis points of that relates to having full quarter of AP this year versus only a partial quarter of last year, third quarter. Then the next line shows another 90 basis points came from synergies. That's the integration work now showing up in our results. And there's more ahead. As we look out to 27, we see strong margin momentum and multiple levers to drive further improvement. Additional AP synergies, greater use of our lower cost centers of excellence, and continued technology and productivity initiatives. So we're not just a revenue growth story, we're also a profitability growth story too. Let's move to page eight to our corporate segment. Our fourth quarter outlook is very close to what we presented in September, and you'll see again in the right lower box, it's just a reminder that we have $3.4 billion of future tax savings from tax credits and tax deductible and tangible amortization. That shows up in our cash flow statement rather than in the P&L. So for modeling, set your cash taxes paid at about 10% of EBITDA, and that should get you close. and remember those tax benefits give us more cash to put to work combined with cash on hand expected free cash flow and future investment grade borrowings we estimate more than 12 billion dollars of acquisition capacity to deploy over the next two years that's substantial capacity to continue executing our m&a strategy our pipeline remains strong we stay disciplined on fit in price. We continue to favor M&A, but we'll continue to repurchase shares opportunistically. So another great quarter across the businesses. We're on track for a terrific full year. We're growing organically, executing on a strong M&E pipeline. We'RE expanding margins, realizing the benefits of AP, and deploying our capital to create long-term shareholder value. We have good momentum heading into 27, and we're very excited about what's ahead. So those are my comments. Back to you, Pat. Thanks, Doug. Sherry, I think we're ready for some questions and answers. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that you please limit to one question and one follow-up question. Our first question is from Elise Greenspan with Wells Fargo. Please proceed. Hi, thanks. Good evening. My first question, Pat, you said that you guys are generating, I think, around 1% organic in brokerage from the rating environment right now, right? When you think about 2027 and the pricing environment, right, getting more competitive, when you guys say that you're looking for kind of a similar level of brokerage organic growth next year are you assuming that one percent persists or are you assuming maybe a little bit of a slowdown and then you know you get some additional contributions from some of the other factors you know that you mentioned new business retention exposure etc no i think the one percent I'll be consistent. Okay. And then my second question is on margin for next year, right? As we think about just synergies from AP coming on, right, kind of organic growth, what seems like it might be within range of 5%, maybe a little bit of a headwind from AP brings that down a little bit, but how are you thinking about just the level of margin improvement that you guys could see next year? Is it back to like baseline, Doug, and then put the synergies in on top? So like, you know, 50 basis points on organic and then synergies, or how should we be thinking about that for 2027 for brokerage? So I don't see it any different than we talked about before. I see margin expansion starting around that 4% range. And if so, if we're at 5%, you might see 50 to 75 basis points of expansion. And then you would get more synergies coming out of AP. We also have AI that we're starting to use. We also other technologies. We'll continue to use our offshore centers of excellence. So I feel pretty good about next year, kind of looking like this year. Thank you. Thanks, Elise. Our next question is from Mark Hughes with Truist Securities, please proceed. Yeah. Thank you very much. Doug, the divestiture is the $73 million in the quarter. Was that or what you expect for the fourth quarter? I'm sorry. Is that a little elevated or is that kind of something we should think about for a run rate? Yeah, good catch on that, Mark. I probably should have baked that into my script. So this is a modeling helper that really helps you reset your baseline for last year. So let me break that down just from memory here a second. The easiest component to understand is we removed from last year in that number what we sold and is what is in runoff. Yes, it is a bit higher in the fourth quarter that we're showing here because when we bought AP, some of their business was already in run off. And you know that from time to time, we also sell or run off some units too. Generally, that creates a book gain that we adjust out. We don't include that in our organic. So maybe in that $73 million, there's, call it $25 million of runoff. And again, I'm going a little bit from memory here of run off and sold businesses. Then we also put in this line that kind of the impact of 606 accounting in the prior year quarter, we don't have as much of that in Q4 25, maybe that was 15 to 20 million of that number. And we shouldn't be applying organic growth to a non-recurring accounting adjustment. So we put that in that line. We do also put the large life. That's actually performing pretty well this year. But I think maybe in the fourth quarter last year, we had $10 or $15 million of that. We've actually had a pretty good year in that business, particularly earlier in the year. But again, in order to level set your baseline for next year to apply organic growth, you need to kind of factor that out in terms of doing that. And then, of course, what we've been talking about, if I remember the fourth component of this, is that when we convert onto our AP systems, you know, we're getting more granular around gross revenues and co-brokerage amounts that are netted against each other. So for apples to apples, there's an adjustment down in that number. It's not a big item. I think it's around $10 million. So you're right to highlight. I mentioned that in my script, but those are kind of the four components that come to mind that add up to that $73 million. Okay, appreciate that. And then anything on commission rates in the software market? If everybody's carriers are competing for premium, is that good for you all? Well, listen, I think our supplements and contingents are showing that carriers value the volume and the good business that we give them. So we're not seeing compression in our base rates at all. Yeah. How about underlying commissions? My thought was maybe they're going up a little bit. Well, we try hard at that, but right now we're okay. The commission rates are pretty steady, and what we do try to do is talk to customers about why we should take a pay cut and basically say, because we're very transparent on every dollar we make, we did a good job for you. Last year we had $10,000. If we stick with this, we're going to make $8,000, we'd like to put a fee on it, and we sell that to some degree, but it's not a cross-over. Very good. Thank you. Thanks, Mark. Our next question is from Dean Cristos Fabio with Wolf Research. Please proceed. Hi. Thanks for taking my question. When you guys announced the AP deal, you said there would be $160 million in run rate synergies with $60 million or a bit more than a third of that coming from revenue. Now your guidance today is for $325 million of run rate synergy, but I don't think you split out the revenue and cost of that, so I was sort of hoping for an update on there. And then you guys sounded kind of bullish on, you know, some upside from the 325. So just curious what would get you to upside from that. All right. Let's work backwards. Just remember when we, when we talk about, we bought a really nice growing business and assured partners, but it was running a point to a point and a half less than like for like business inside of Gallagher. And therein lies some of the, a big opportunity as they, as the producer, the great producers inside of AP, get our tools and capability. You know, over a one- to three-year period, our goal is to get that up so that it's performing at the same level as the producers inside of Gallagher overall. All right, we're on track for that. We also know that we can get some enhanced compensation as we start using the AP distribution force. It gives a great opportunity for our wholesalers and our binding and our programs folks to start calling on those folks, so we'll pick up some there. But by and large, the revenue that we're talking about is the same in the $325 million number as it was when we did the secondary offer. We have not throttled revenue to get to that number. It's mostly in the expense line. Got it. That's helpful. And then last for you, I know you're organic. you had headwinds something like the large life sales and the deferred revenue assumption changes and i know that's not in your guidance for this year but curious if you expect that to be a tail into the reported organic number in 4q um well no it was not in our organic anymore the way we report it i don't believe there's going to be significant change in that accrual number when we come into uh to the year and i'll have an update on that we update most of our 606 factors here basically beginning now so when we get together our december ir day i'll be able to give you the impact of that but it shouldn't influence at all anything that you're seeing on page four in our organic growth numbers got it thank you our next question is from mike zaremski with bmo capital markets please proceed Hey, thanks. Good afternoon. Maybe just a quick clarification on the organic growth outlook for brokerage. I think, Doug, you said that a 40 to 50 basis point impact for next year. Should we be, you know, since we're going to be including AP in the full year next year um are we saying kind of you're thinking it's the same as 26 on legacy but then we minus 40 to 50 basis points to take into account uh ap that's what i'm saying as we go into the year uh you know uh i think that that's the that would be the level of a little bit of headwinds if they if ap continues to run in the point and a half difference in in organic than us that would mathematically produce about a 40 to 50 basis point headwind in total gallagher organic growth next year got it that that that makes sense i would say it's it's almost a rounding when you get down to it and not to not to you uh belabor but like you know ap's only been part of you guys for you know a a short period of time but would it be coming with ap's lower organic after a year or so of being with you all be just it's not really part of it's not fully integrated so there's new new businesses running kind of below the you know what you all as a legacy gals or gals are able able to do or is there another component that's exactly right and typically when we do acquisitions like this Those people with our tools, our capabilities, and our vertical or niche capabilities in particular see a nice lift. And I think that they're slightly behind us in organic, and I think we will see a pickup. They're coming on to the tools and the capabilities as well as working together. We keep talking about we're better together. Well, we're seeing that over and over. We're not going to sit here and give you a list of new production for the month or the year, but it's very strong, and it's really exciting. I think that, to me, is one of the most exciting things about the whole deal is we are selling a lot of stuff together. Yeah, if you think about it, Mike, timing-wise, we didn't close until August. By the time that came up very quickly for us, because we actually did push through the second request very quickly, so we get it done. We get into the fall and start doing the Hearts and Minds campaign. That stretches into January and February. We have our sales conferences where we continue to roll out more tools. The tools are on their desk, but using that, the way I look at it from the CFO's desk, we've really only had the sales excitement going on for about seven or eight months. And if you think about P&C business being and benefits being kind of an 18-month sales cycle, I think that we're just coming into our own on that. So I think the 27 and 28, those are the test years to basically take these tools and bring them up to our level. So I'm very excited about where we are right now, but understanding how this isn't a call center type operation where you increase advertising today and sales come in tomorrow. So it takes a while, but we are getting really great feedback from the field on how these tools and capabilities can make it better. And that's what we saw in the other thousand acquisitions that we've done over the last 20 years, too. It takes a little while to learn it, get it up and running, and then leverage it. Got it. And just really quickly, reinsurance, you guys continue to take market share. Great story there. Just you guys, probably your outlook is probably more bottom up than top down, but on a top down level, if we were to say that, you know, the reinsurance overall reinsurance marketplace was going to grow by two to three points less a year on year, 27 versus 26. Would that, does that, do you think that would, that that would be taken into account in terms of your, thought process on reinsurance next year, or you guys don't think about it that way? Oh, we don't thinking about it, that way. I think one of the things about reinsurance is very chunky. So, these are big deals, and they have a life of their own, and our team is very, very good. So, we feel good about next year. Thank you. Our next question is from Andrew Klingerman with TD Cowan. Please proceed. Hey, good evening. This is a basic question, but it's important because I've been getting the question from investors, particularly newer ones. And it's the question about differentiation as I see a number of your competitors, both private and public, starting to stumble in organic growth and yet I look at Gallagher and year-to-date it's just you know in brokerage five percent five percent just solid all the way across and I know on this call you've you've touched on a bunch of stuff Doug just said the words tools and capabilities Pat you were talking about productivity and quality with the digital and the center for excellent then you rounded it out with culture but i i hear that same kind of commentary from your competitors so i i maybe there's something even more tangible that you could give me here when i get that question because i've been getting it quite a bit amidst the softening market well all right i'll go out on a limb on this one andrew i think that the differentiation is in the culture i mean i think there's i'm the one guy that just i don't get off the subject but you know it's 600 interns last summer i don'T i DON'T KNOW WHAT THE INDUSTRY IS DOING BUT NOBODY'S EVEN COMING CLOSE TO THAT YEAR IN AND YEAR OUT BRINGING 600 PEOPLE YOUNG PEOPLES IN TO LEARN ABOUT OUR BUSINESS WE DON'T HIRE THEM WE GET A GOOD PERCENTAGE OF THE ONES WE WANT AND THEY'RE DAMN GOOD I MEAN THAT THIS IDEA THAT THE YOUNGER GENERATION CAN'T MAKE IT THEY ALWAYS NEED A TROPHY THAT'S THAT'S JUST NOT EVEN close. So that starts with that, ripples through the whole organization. We are at our heart. We love to sell insurance. Everyone at this table today would jump on an airplane tomorrow to go sell an account. We know what we're talking about when it comes to that stuff. We live our global capabilities and the team works together. So, you know, I think it's just one of those things that we are very sales oriented. We're working hard to keep our pipeline up. We understand the sales game we're not over complicating it if you don't get in front of people you don't make sales we get in fun of people and you got a good story to tell about how you can actually help them then yeah you have a better better than that's on chance and I'll tell you my tools when I started a long time ago our hit ratio was probably high 20s low 30s on our opportunities we went out the door to propose and I'd say ten years ago that was probably the same to dark tools today we have empirical evidence that if you'll use the tools those those hit ratios are moving over 40% and up towards 50 that just tells you the power of the tools combined with the power of the structure by that I mean our vertical capabilities and then the culture to work together I haven't had to get involved in a commission split argument in over 10 years it just works And guess what? We have fun doing it. Got it. So the A-plus team in the major leagues. I would like to know about M&A as my second question. You talked about a $300 million pipeline, and I'd like you to square it with what I've been hearing, that M&As in the brokerage area is starting to slow down. Yeah, I think it is starting slow down, and frankly, that $300 million is probably off with the numbers that we've told you in past years. And the fact is you've got a group of entrepreneurs out there that don't have to sell. They do a very good job of making money for their family. You don't need to have a $100 million agency to do that. Clearly multiples are down, pressure on revenues. People aren't necessarily – there's not as much demand for those properties. And I think that there's just a typical low. Now, if the tax law begins to look like it might change, if, in fact, the aging population realizes that they've got to do something for their people and to capitalize their asset, we'll be back into what we saw in 2006, 7, 8, 9, 10, with people who are out there helping them come to grips with the fact that this isn't going to change back to the 18, 19 multiples overnight. You won't be able to babysit this thing and then end up getting the growth that you want. let's get that let's together and build it together but that's going to take some time now at the same time you know there there there are still lots of opportunities when we did the assured partners deal there were about 300 or more acquisitions they did you recall that we had looked at 6% of those 94% we never got a call in the race one year 15 months after that acquisition, I have met thousands of their people, not hundreds, thousands. And I'm telling you, they all fit in this organization. It's incredible. And they're salespeople. They love taking care of their clients. We would have done those deals. We just have to be better at getting out and telling our story. And, I think, when we do that, we compete very, very well. Great. Very helpful. Thank you. Thanks, Andrew. Our next question is from Greg Jeters with Raymond James. Please proceed. Hey, good afternoon. You know, Pat, every quarter and every management meeting, you give us an update on endorsements and audits as sort of an indicator of what the underlying health of the businesses, your clients look like. Could you spend a second and just give us, I think you said nicely positive for what you're seeing most recently. Can you give us a sort of snapshot of how that's trended this year versus last year? Is it keeping pace? Is it down a little bit? Is it up a little bed? Just sort of the cadence of what's going on there. Doug's got the sheet in front of him. I'll let him take it. Boy, I need glasses for it too. So, all right. So here's the way to think about it. If you think on a quarter by quarter basis, right? in 2025 well let's just say first quarter was x uh first quarter of 26 it's x if i do that again it's uh the second quarter it'sx then the second corner 26 it was 150 percent of X. Let me go back to first quarter. Sorry, I picked a bad number. First quarter, it was 85% of X. Second quarter is 150% of X third quarter here. It's almost two X guys. So, I mean, we're seeing the positive trend in the last couple of quarters, though, kind of the net net of all this together. It is still very positive and it is still not. Does it move our organic at all in in terms of these numbers? No. But I'm saying the indications when you add it all up, and that's kind of globally. I could probably go down by division. Let me work on that a little bit more and maybe give you a vignette in December. But it is pretty telling and it's been pretty consistent. When the world was saying that there was a recession coming, we weren't seeing it. And our underlying, our client's activity is a terrific, almost daily indicator of what's happening with our remember this is our middle market this is you know this is not this is not personal lines and that it wouldn't be that you know the fee-based clients wouldn't be necessarily as as uh big in here but this is our core business and i think that the health around the world is based in that mid-market uh that mid market buckets so thus far pretty damn good correlations in my opinion Yeah, and just to clarify, this is middle market globally for your business, but it's got to skew heavily towards North America. Is that correct? Yeah, the best that we have at like for like, and we capture, we get rid of the stuff that isn't like for alike. But yes, we scrape this, you know, we've got a single global data collection strategy, and this is what we're getting from our agency management systems around the world. Now, that's primarily Canada, the U.K., Australia, New Zealand, and the U-S. Yeah, yeah, great. You know, the other question, just getting back to, you know, your record of expanding margins and, you know, at the September management meeting, you rolled out the concept of using technology, I think, to get a gross margin expansion of 600 after 200 of spend, maybe net 400 basis points of margin expansion over the three to five years and you're talking about ap raising it is part of that margin expansion inside ap part of this tech bigger tech initiative that you were thinking about or maybe you can just help square the the two different um programs ap margins AP synergies that provide you have very little impact from technology, right? So, the AP, you got to kind of level set for AP and then we'll be on our margin journey that between technologies and everything, we'll do that. So, I would say there's very little duplication in that. Thank you for the clarification. Thanks, Greg. Our next question is from Yaron Kinnar with Mizuho Securities. Please proceed. Thank you. Good evening. First question, I apologize in advance. It may be a little bit of a nitpicky one, but when I look at the Assured Partners Organic, I think like a quarter ago in second quarter, you talked about roughly 4%. Then in the investor meeting last month, you were talking about three and a half to four. Now it sounds like it's three and a half. Can you maybe talk about what is driving the pressure relative to expectations only a quarter ago? I think it's just quarter by quarter mix of the business, Yaron. I wouldn't say that there's any, there's no systemic shift in what the producers and AP are facing today versus what they were facing before. Again, you said that it was a nitpicky question. I don't believe it is. I think It's a fair question, but I think it's a pretty small differential. If you think about $2.9 billion, a point and a half difference on $3.5 billion. Let's just say they revert to Gallagher, right? We get an extra point and a half of organic. That's $50 million more in revenue. Let'S say we make 30 points on it. That'S $15 million of EBITDA. Compared to a $5.5 or $6 billion company next year on EBITTA, you know it's a pretty small incremental i think what it does it signals more of of giving producers a better home to toil and and and take care of their comp of their their clients so for me getting it up to gallagher is not really a financial uh huge win for us what it is is it's a cultural win it proves that we can be better together so for me that journey is as much about getting the culture right as it is to drop another 15 million dollars of profit into the business so it's it's uh kind of as you think about it that way uh whether it's one quarter it's a half a point different on 700 million it's three and a half million bucks of or maybe if i'm doing the mental math here on that right but but on on the quarter i thought that the the commentary you provided earlier was really about that, maybe the headwind that we can see for full year 27. So that wouldn't be a quarterly issue. That's the annual. I do think that if you roll in AP into us next year, maybe if we didn't have AP, what we report by organic growth would be, you know, 40 basis points higher. On the other hand, we're not going to, we'd be missing 1.3 or 1.4 billion dollars of EBITDA too. So it's a pretty good trade-off. Had a multiple to pay that we thought was really a fair and reasonable multiple to play for a business like Shared Partners. So this is a terrific acquisition. Remember, we buy EBITDA growth. We don't buy necessarily revenue growth. I know you guys think about it a little bit differently from time to time. No, all fair. And then my second question, going to page four of the organic revenue breakdown. So, just looking at the sequential change from third quarter numbers to fourth quarter expectations, see a bit of a slowdown in international brokerage, acceleration reinsurance, and a rebound in benefits brokerage. Can you maybe quickly touch on what is driving the expectations for the changes sequentially? All right, so let me catch up. Just say your question again. Yeah. All right. You're looking at why the excitement in international. Is that what your question? Well, we're seeing a bit of a slowdown, right, from third quarter to fourth quarter, from 9% and 6% in the third quarter for the two international regions down to approximately 3%. Against that, you see an acceleration in reinsurance from 7% going up to 11%. I understand your question. Now, I think that one of the things about it is that you've got to look at, like, the aero business and that business. Sometimes there will be 18-month policies versus year policies. We're getting some good lift offsetting those 18. I think we had a handful of 18- month policies back in 2025, if I remember right, in the aro business. But I wouldn't say that there's any difference in excitement. I think what's going on, and I think this is where value comes into play. When you're talking about war risk, when you're talking about Marine Hall, when you're talking about aviation, it is a complicated business, and our pros are pros, and I got to tell you, the fact that if they write an 18-month policy in one year and it's a 12-month in another, that can have a little bit of impact, but these guys are doing a very good job, and, you know, we are benefiting a little bit with war risk premiums. We didn't really assume all that much for the fourth quarter. We were kind of hoping for some peace there. So who knows? Maybe we'll get a positive surprise on that. I hope you're right. Our next question is from David Modamadin with Evercore ISI. Please proceed? Hey, thanks. Good evening. I just wanted to circle back to the rates contributing a point to the brokerage organic growth this year and the expectation for that to continue next year. I guess I'm just curious, what is the level of cure rate that is contributing to that point? The level of what? Sorry, you just broke up, David. What is the level of pure rate that is driving that one point to organic growth? You're saying pure rate, so you talk about it. You're asking about if we look at what rate was this year all in aggregate, and we know that it decreased especially in property, right, cat exposed property. Are you asking how much have we assumed another step down in that next year? Yeah, I mean, I guess what I'm trying to get at is like, let's just say, I mean, you gave the RPC, that obviously includes exposure. So, you know, if I look at like RPC X property is three, and I assume that like, hey, that maybe means rates is like one within that, and that's driving one point of growth, is it linear? Like if rates were to, you know, go down again from like one to zero or to negative one, like how much of an impact could that have on the organic? I'm just trying to figure out like if, you Know, at what point does the does that rate contribution, the one point to organic growth? At what point is that become does that flip to be zero or actually become a drag to growth? That's a really tough one. You've got, as we said in our prepared comments, what's going on with the rates do not directly relate to what happens to our revenue. So are people going to buy more insurance? We're trying to make sure that happens. Are people going through – we've got inflation in the country. Inflation actually bumps all those exposure units up. So, you know, what has to happen to get rates to zero? Well, if the casualty market falls on its face and goes the way of the cat property market, there'll be a drag. But at this time, it doesn't look like that. If anything, it seems like property is bottoming out. People do have good business going. They are buying buildings, and those buildings are going up in value. So it's hard to answer you when you get as detailed as one percentage point, which relates to the fact that pricing in general is going up. If that pricing drops and goes from rising 3% next to cat property to falling 3%, it'll probably be a drag. I don't know if that's helpful, but it's just hard to answer because it's not directly alignable. Yeah, no, I hear you. I thought it was worth a shot, though. I guess my follow-up question is just, you know, you spoke about the consulting business getting delayed within benefits. I guess I'm wondering how much of a drag that had on the organic this quarter. I think you guys had been sort of lowering that expectation for third quarter benefits organic in July and then September. But if we were to think about that consulting business just not coming back, I guess how much of a drag could that be if we think about next year? All right. So the way we look at it is this. First, let's explain why. Right now, rapid inflation is consuming all the time for human resource leaders and CFOs as they're trying to figure out their their rates and what they're going to pay for their insurance next year they're going to have to decide how much they pass along of that in that rapidly rising inflation to their their employees it keeps them from looking at other voluntary benefit opportunities it keeps them from working for uh health and welfare opportunities for their employees that help it keeps him from looking after how to recruit and retain people better so that's the reason why is there's a distraction because medical inflation has skyrocketed from what employers are seeing over the last six to nine months. I mean, the fact is, and then really right now as people are doing their 26 picks, the last 60 days, it's really, really coming to bear as the actual real studies show that. So what's that mean? Okay, maybe there's $4 million of consulting projects that got deferred. We hope to see that in the fourth quarter or the first quarter of next year as we come into next year. There were a couple of large projects, call that another two or three million dollars. So the nature of this, as we're talking about, even if you threw a hat over and said it's $10 million of revenue differential in a quarter, you know, the profit on that is three million bucks something like that so it's not a huge impact to our to our profitability and it is timing in my opinion now the timing is at fourth quarter is a first or second quarter next year we'll see but it is we right now our professionals are doing a great job helping our hr and cfo folks figure out their benefit costs and that naturally distracts them from doing other projects so i don't know if that helps you dimension a little bit but i want to make sure you understand the why again yeah that that makes sense yeah that's pretty small um i guess maybe if i could just sneak one realize one other thing and i'm sorry our first quarter is our largest quarter right and so when it comes to benefits so the the amount of revenue that we recognize in the third and fourth quarters is dramatically smaller than full year we think the full year number is a better number to take a look at necessarily than necessarily quarter over quarter and in this quarter there was a few million dollar contingent commission that we didn't hit because of volume levels too so there was little noise in that right okay that's helpful and then if i could just sneak one more in um on gallagher bassett um about 60 percent i believe of the of that business is from workers comp and i i guess i'm just wondering what you guys are seeing on a frequency basis like you know exposure adjusted um you know what you guys are seeing in that book? So frequency in our book for our clients because of our loss control isn't up dramatically. We're teaching our employers to keep accidents from happening. And that loss control unit has been very successful. Like for like up, frequency is up. For others, it's up. When it comes to the inflation, the gross number of medical costs is impacting, but many times workers' comp is controlled on how much medical costs can be passed along on those cases. We don't pay that. It pays out of the file. Frequency in our book of business is stable. It's not declining, but you're not seeing like – but across the industry, frequency on workers' comp is up in the United States. Great. Thank you. Our next question is from Alex Scott with Barclays. Please proceed. Thank you for squeezing me in. This is Justin on for Alex. My first question, I wanted to ask sort of about your new business opportunity. You mentioned that clients are buying more coverage as pricing is coming down. So as we think about sort of sustaining organic growth into 2027, like maybe there were some additional opportunities to expand relationships with existing clients. So I was just wondering if you can kind of help us break down new business into like the opportunities you see in terms of expanding relationships with existing clients versus winning new logos and how you're positioning your producers to sort of capture both? Well, I don't have a number on that, but let me tell you how it works. We look at every single account at what we call white space. So what do we provide in that account? And every study going back 100 years will tell every industry that if we're doing one line, we have less of a chance to retain that account. If we do three, four, five, six lines of cover, we're going to get stronger and stronger retention. So every single account, we look at what's the white space? What are they doing with someone else? Who is that somebody else? And literally, less than 15% of the time when we compete, we are competing with our peers of the same size. I'll put a name on it. We compete with Marsh, Aon, Willis about 10% ofthe time, maybe 12. So 80-plus percent of the time, that white space is held by somebody that's not Gallagher. And I'm telling you, there's not a line, there'S not an industry, there' s not a geography, that we're not tougher than the incumbent. Do we get that business every time? No. And, of course, we are a new business machine. And that is just straightforward marketing efforts we're doing. We put campaigns out, thousands of contacts every week by very specific areas that we have expertise we have webinars people come to those we record that in Salesforce which we call Gallagher win and we watch that business come through the pipeline so I feel really good about our velocity in terms of what we write against what was written last year I feel very good about our capability of closing accounts out do we win them all no as I said earlier our hit ratio is improving but I can't give you a number that five comes from this and six comes from that that all lives up to seven one thing i will say are in a non-chaotic market our wares are better we can show our warage better uh when it's a chaotic market of going up 20 30 always it's hard to have a client sit down and sit there and say let's talk about your risk score when things are more stable it gives us an opportunity to prove that you get more from gallagher than you do from where your incumbent broker is. So the tools and capabilities that we have in a non-chaotic rate environment are easier to show, and I believe that leads to a higher new business win. Understood. Thank you for the color. And maybe just a quick follow-up, perhaps around headcount. I did notice that you guys posted that number in the release, and it seems like most of the increase um came from sort of the centers of excellence um so i was just wondering maybe as we look into 2027 if you should sort of expect sort of same composition of headcount year-over-year changes across sort of people on the business side versus folks on the coe side so here's the thing i think first and foremost i think the comp ratio is a better number to look at than headcount i think the head count per dollar of revenue is a little bit of an antiquated measure and it certainly maybe across the industry, but certainly at Gallagher. As we use our offshore centers of excellence, it's a compensation ratio number that's better than headcount. But yes, I think that one of the things that you can see is if you look at Galligher Bassett, their headcount is growing because of acquisitions, call it a couple hundred, and their net hires are around 500, which is a lesser number. That growth against the base is less than their organic growth. So can take a look at that. When you look at the brokerage head count, we acquired maybe about 1,500 people since September of last year. I don't know exactly what numbers that you're taking a look at. And then we've also had almost a direct correlation between as attrition in our middle and back office happens, we tend to hire in our offshore centers of excellence. And that's almost a head-per-head type basis. So you're looking at something very smart. I think that the juggernaut that we have in our offshore centers of excellence, those are our folks. They only work on our clients and our business. I Think that is an amazing story. And that's what enables us to deploy consistent data expectations around the world. So that's how we get the information to be consistent. That's how We can deploy AI into the business and further leverage what we're doing here onshore to make our folks better informed at the point of sale and renewal. So you want to see that offshore number increasing, and I think that it shows that the investments we've made over 20 years, just every year, steady by steady, building that center out, it is an impressive series of operations that I think we have more CPCUs in our offshore centers of excellence than we do aggregate around the rest of the country. So, it is an impressive and, I'd say, strategically important asset for us to have. Thank you. Our final question comes from Mayor Shields with KBW. Please proceed. Great. Thanks so much. I only have one question. I know we're not seeing it at all in the specialty organic growth numbers, but behind the scenes, Is there a niche trend of admitted markets coming back and taking business out of the E&S channel? All right. So, listen, I think in Pat's prepared remarks, it's interesting. In our renewal book of business right now, the answer is no. If Gallagher Retailer is putting the business in, is selling the business, they're using the E & S markets equal to what they were in the past. So, here's why. E & F isn't the market of last resort anymore. It is a different market today than it was in the last soft market. Sure, there are some small business that will whipsaw kind of the tail of the dog. But when you get to the actual purpose of what E&S is, it offers creativity. It offers solutions. It gives our middle market customers access to different sources of expert capital. And we're seeing that our retailers value that. You're also seeing it on the supply side that carriers, many carriers have an E&F carrier. So they're not all that excited about pulling that business back into their admitted carrier. So we're not seeing the supply side encouraging it. The demand is still there for the creativity of it. So we don't see it. New business, submissions, still about the same percentage, maybe 5% less, something like that, is going to the E&S market than before. So the E & S market is here to stay. It is an important source of capital and risk-taking capital in the market. So we're just not seeing the migration back into the admitted carriers. And our book and then also – and, you know, we do trade with a lot of smaller agents and brokers out there, and they're still receptive to using the E&S market. I think also we're getting the benefit of the AP, Woodruff Sawyer, and the deals we've done. These new partners have embraced RPS in particular, and we're seeing great submission activity that came. Those firms did not have the same restrictions on using a whole host of outside brokers. You might recall years ago we consolidated down to five wholesalers, four wholesalERS, and these people have embraced that, and RPS wins a very big chunk of that. So not only is it sticky, and also remember a lot of these are specialty programs. So when we put something together, we created a facility called a DAF, and it does shared and layer coverage around the country, around the world. And that is a very sticky proposition. If you put it into one of our facilities or an advantage program where we negotiated better rates but also better cover, those are not programs that you lose businesses. So I think there is a change in how that market is reacting to the renewals. Okay, that was very helpful. Thank you so much. Well, good. I think we're at the end of questions here, and I appreciate your being here today. It's been a lot of good questions. And I really think reminding everyone, we just had a great quarter. Thank you for being with us to listen to it. We feel terrific about the future. We've got plenty of opportunities ahead, andI couldn't be prouder of the team. A year ago right now, we spent $13 billion and brought 11,000 new colleagues into the business with $3 billion in revenue, and it's performing beyond our expectation. My grandfather opened our agency in Chicago in 1927. Today we're 74,000 colleagues strong, serving clients in more than 130 countries. We got here because our colleagues year after year did the right thing for clients and for each other, and the 27th will be our 100th anniversary, and we're going to celebrate that. We're goingto celebrate the people that built it, We're going to celebrate it all year long. Not many companies get to say that they turned 100. So really to all our colleagues around the world that I hope are listening to this, thank you for everything you do for your clients and for each other. That's what makes Gallagher special. That is the Gallaguer way. Thank you for being with us today, and have a good evening. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.