Arthur J. Gallagher & Co. To Host Quarterly Investor Meeting Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Hi thanks good morning. My first question on is the wholesale business. So you guys are looking for a slowdown, right? The growth has been in the double digits in the first quarter and you're looking for it to go to seven to nine, I think the first quarter was around 13. Can you just walk through what's driving the slowdown with the wholesale organic growth potentially? Can you also give us a sense within the second quarter, what you're looking at for your open brokerage versus your MGA or binding business within the Q2 organic guide? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, AJG.N - Arthur J. Gallagher & Co. To Host Quarterly Investor Meeting

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay. But within that, I guess can you say is the open brokerage organic still in the double digits in the Q2 ?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay. And then on the change in earn-out payable went down modestly, I guess from the last update, Doug, I know you pointed that out, does that mean some deals are performing like weaker than expected or is there an FX impact? I just want to understand what's going on in that line.

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay. Thanks. And then one more on the M&A pipeline. On the disclosure that you guys gave, it's the pipeline, right? I think you said $550 million of revenue. I believe that was the $350 million a couple of months ago. So the pipeline's gone up, but maybe it seems like deal activity is a little bit slower to start this year on. I'm just trying to reconcile this is just that, Doug, to your point, deals are maybe more second half heavy is something else going on there just with the pipeline and just maybe a slower closing of deals so far this year.

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Thank you for the color.

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : Good morning. Maybe the to hear from you guys on. So on the reinsurance, organic continues to be excellent. I was maybe hoping to unpack it a bit and maybe, Doug, you answered it and just said there's just some increase demand. But I'm -- I guess I would have thought last year and correctly that given that the pricing decal we would have seen some kind of a bigger or just at the decel. I know there's a lot going on there with stack build-out and some of the synergies, but it maybe you can unpack it as it is. It's just all coming from increased demand. Are there other and things we should be thinking about?

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : Okay. Switching gears a bit to the on the commentary you and others have been talking about in terms of the your carrier partners are talking about maybe needing some more casualty rate in the coming years. I guess at Gallagher, do you guys and gals have I'm assuming you have data, especially from Scott Hudson's liability number comp on business too. Do you guys have data and have your own internal view on what we're seeing and on casualty ?

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : I guess Scott's team on the on the claims management side, are they seeing an increase on the casualty side in terms of severity and frequency that you said that you're seeing it too on the clients you're doing claims for or it's likely to be in itself.

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : Okay great. I'm curious and I have a question that's probably for Scott Hudson I'm not sure if he's still on the line.

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : Okay, great. I guess I'd probably for you, but maybe not. But I'm at least we've you've got this question too about on the workers' comp side whether you're seeing an uptick in health inflation. But I guess more specifically Florida changed its fee schedules, increased the fee schedules there for workers' comp. If you're aware of that, do you think that's a phenomenon that we could see in other states increasing that their work comp fee schedules and if so, what's driving that pace?

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : Okay. And maybe I'll just finish with one high-level one, lastly and on wholesale. So it clearly the some of the decel is being driven by property pricing. But just curious, I guess if we think back to the wholesale market over just long cycles, the inflows have been based on just kind of overall profitability of the of the industry. And I guess do you think that whole dynamic of if it's a traditional industry does do what there's expected to do and throws off double digit ROEs, mostly due to higher interest rates in the coming years. Is it is it right for us to think that there will be a continued deceleration in flow and our price or is there just new dynamics that have taken shape in recent years that are just going to continue to drive flow into the E&S marketplace. And that's probably for Joel.

Question: Mike Zaremski - BMO Capital Markets Equity Research - Analyst : Thanks for all the knowledge. Thank you.

Question: Paul Newsome - Piper Sandler & Co - Analyst : Good morning. Hope everyone's well. I wanted to expand if I was hoping you could expand a little bit on that comments on contingent commissions and what's for recognitions, not the biggest number. But I think it's interesting in that it certainly well, what's going off the business in general. But the first question is, is it fair to say that contingents for you are like many others in that it's kind of a pure profit. Source of revenue. And so it does have a little bit of a disproportionate impact on margins if it changes? And then the second question is if you can expand sort of on the source of those contingent changes. I think I heard you say sort of essentially reserve charge issues which suggests to me kind of a liability, commercial liability is the source of the change , but please expand and let me know where I'm right or wrong, all right?

Question: Paul Newsome - Piper Sandler & Co - Analyst : No, that makes sense. I think I'm just I guess the reason I'm curious about it even though it's small, is that at least on the carrier side, the big question in the first quarter was is general liability casualty reserves and whether or not they were majorly deficient and it sounds like there was a little bit of sensitivity for your business if we see continued concerns and reserve charges, but obviously not a lot because it's not a big number from, but that's trending right now.

Question: Paul Newsome - Piper Sandler & Co - Analyst : No, thank you. Super interesting. Appreciate of help as always.

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : Good morning, everyone. So I guess for the first question, the analysts, your file publishing analysts are going to be over the next couple of months, many of them rolling out their fiscal year '26 estimates. And so you're pretty good about providing guidance, several quarters out. I'm wondering and I don't want to get too far in front of what you're prepared to talk about, but I'm wondering if you can provide us any sort of benchmarks on how we should be looking at fiscal year '25. (multiple speakers) everyone wants to answer this one.

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : Well, that's about 25. It was very apparent to me that that was very intentional by the way because I just you know, if you look at consensus estimates, I think there's like eight estimates out there on 26, but everyone's got a 25 estimate and you're talking about just the back half of 24. So I'm just trying to get you to roll forward and sort of frame up 25. And I know there's a lot of things that can change over the course of the next several months, but you're pretty good about providing some guidance on those.

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : Fair enough. Pat and Mike, both (multiple speakers) Yes, that's fair. I just that was a good comment. Appreciate it, Pat. Mike, you mentioned on the net new business spread, both your comments and I'm wondering, it sounds like just flat-out new business wins, and I'm wondering if you can provide us some perspectives on what that net new business spread means and how it looks right now versus where it was, say a year ago? Michael R. Pesch - Arthur J Gallagher & Co - Corporate Vice President, Chief Executive Officer, Global Brokerage - Americas Yes, this is Mike Pesch. It's certainly up a point or two compared to this time last year, our retention. So just remember in a challenging market, sometimes what we see is our clients test us a bit more in our retention slips well. Many of the investments that we made over the last five years that I spoke about today and that you've heard me talk about and others talk about in in previous calls, talk about the impact of the client on some of those investments. And the good news is we're seeing our retention hold steady and even in many cases improve. And so when you have that that as a starter then when you tack on new business, which has been very robust, we are winning more new business. I've talked about that in the past that our even though we compete 90% of the time against smaller brokers, our wins of $100,000 or more make up 54% of our overall takeaways. And so that's a significant number. And when and then when you have the base in retention that's holding steady or slightly improving, that's where you get that spread. And so it's a point or two higher than we were at this time last year. And when you look at our pipeline and we look at it every day, every day I go in the office I turn I turn on my computer. I look at our CRM and I can see our pipeline and it's better than it was by about 20%. And then over last year. And so when I look at that pipeline, like Pat talked about M&A and then I factor in what we've actually closed one and the size of accounts that we're winning I'm very bullish on that new business spread.

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : Indeed, the insurance brokerage model is attractive. No doubt. guess the two final questions are going to focus on Patrick's comments . First of all, Patrick, you mentioned smart market and this has come up. I've asked you about this before? It seems like it's growing. The number of markets. Is it 20 markets that I'm not sure that's really changing, but maybe you can provide us some perspective on how smart market is growing if it's a premium number or what metrics are looking at? And then then I'll have another question and then that will be it.

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : That makes sense. On Patrick, the final question I had in. I know this is a more macro question, but maybe not, but it's you talked about Gallagher features in the summer intern program. You hear about worker shortages in various geographies. I'm just curious about how the budget is for that this year versus last year, how the number of people coming into those programs this year versus last year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, AJG.N - Arthur J. Gallagher & Co. To Host Quarterly Investor Meeting Look in the context of what is presumably a tight labor market?

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : Yes. Just a follow-up on that point. It for us, if you do an acquisition and there's earn outs associated with that and then you're asking them to hire internally, does that net expense penalty go against? And I know it's rather minor, but just trying to understand how the where the cost of that is borne. Has that borne at corporate? Or is that go into the new entity that you just acquired?

Question: Gregory Peters - Raymond James & Associates, Inc. - Analyst : Okay. Well, Pat, I love the 5% comment. I hadn't heard that to speak before. But thanks, everyone, for your detailed answers.

Question: David Motemaden - Evercore Group LLC - Analyst : Thanks. Good morning, I had a question just on the primary RPC, excluding property, that was up 6% to 7% or you're saying up 6% to 7% in the second quarter. I'm just wondering what that was in the first quarter and if you're seeing that accelerate at all I know there's some mix impacts, but just wondering if we sort of strip out the property side of it, what you're seeing on RBC.

Question: David Motemaden - Evercore Group LLC - Analyst : Got it. That's helpful. And then on just a question for Mike Pesch. You had mentioned lower April mid-term policy adjustments. Sounds like that that sort of normalized in May and June so far. But I was wondering if you could just elaborate a little bit on what you saw exactly and if that has changed your outlook for growth at all? Michael R. Pesch - Arthur J Gallagher & Co - Corporate Vice President, Chief Executive Officer, Global Brokerage - Americas Yes, David, I don't think it's changed our outlook for growth. I think it's sort of an indicator for us on the healthiness of our customer base and what we're seeing in terms of endorsements or audits that come through April. And while it was lower from previous year, April, we are seeing promising things in May and June. And so I right now, it's not causing me any concern that maybe there's some overall economic factors? Yes, we had lower endorsements on D&O, which again, we all know the D&O market is it still a challenging market from a reduction standpoint, we are starting to see that sort of smoothed out a bit as we get into the latter half of this year. I think the rate overall on that specific line, albeit it as a percentage of our overall writings is smaller. It is starting to stabilize a little bit, but it doesn't cause me any concern, David.

Question: David Motemaden - Evercore Group LLC - Analyst : Got it. Okay, understood. Thanks. Thanks for that clarification. And then your also just in Mike and Doug? Yes, I think you both mentioned just rates increasing in the middle market by more than in the large market, which is pretty consistent with what we've been hearing and seeing. I'm just wondering how long you think that differential can be sustained or how much, I think guys at one year, two years, I guess how are you guys thinking about?

Question: David Motemaden - Evercore Group LLC - Analyst : Got it. Thank you.

Question: Katie Sakys - Autonomous Research - Analyst : Good morning, I'm circling back to the discussion on RPC. I think a quarter ago, US retail renewal premiums were looking to be up around 7%, which I believe included property and management noted a feeling there could be a tick-up to that over the remainder of the year. I recognize that we aren't quite at the midpoint of the year yet, but that tick-up hasn't yet been the case. So I'm wondering what's changed in the last 12 weeks? And how is your outlook on US retail pricing shifted for the remainder of the year?

Question: Katie Sakys - Autonomous Research - Analyst : Yes. Got it. Thank you.

Question: Tim Cahill - KBW - Analyst : My first question goes back to casualty reinsurance. As we continue to see like accelerating primary casualty pricing, do you suspect any changes maybe to ceding commissions or terms and conditions as well? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, AJG.N - Arthur J. Gallagher & Co. To Host Quarterly Investor Meeting

Question: Tim Cahill - KBW - Analyst : Got it. And then just real quick My second question back to M&A. As we go into the second half of the year, do you suspect any changes to M&A multiples?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Hi, thanks. Thanks for taking the follow up. The first one, the $750 million earn-out that gets paid in the Q1 of next year. To illustrate, we'll have earnout ?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay. Thanks. And then on M&A, I'm just fleshing out some of the discussion on it sounds like you guys are pretty bullish right on act on deals that come to fruition in the back half. So your prepared remarks comment, Doug, about like if you don't use the cash that you have maybe share repurchase enters the equation, it sounds like that would more be a 2025 versus 2024 events? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2024 / 1:00PM, AJG.N - Arthur J. Gallagher & Co. To Host Quarterly Investor Meeting

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay. And one last one on that pipeline on that, are you guys provided the $550 million, how does that skew on US versus international ?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Right. Okay. And then any other international areas that are make up a good portion of that or nothing that you would call out or?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay, thank you.