Arthur J. Gallagher & Co. Q1 2025 Earnings Call Transcript

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

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Hi, thanks. Good evening. My first question, I wanted to start with the pretty impressive 20% growth that you guys saw in reinsurance. Can you just try to break that down between what's coming from pricing, retention, new demand? And then if you could give us a sense like if it's new or if it's business that you're taking from peers? Because it's a pretty strong number.

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : That's great. And then my second question, so it sounds like you guys are still working, I guess, not a lot to update, as you said, like working on a response to the DOJ. So is that something, I guess, you guys would expect to respond? I think there's like a 30-day clock once that happens. Is that something that, based on the timeline of a Q4 close, Doug, is that -- would you expect to just respond to comments, I guess, that would be something that would happen in the Q2? Is that your expectation?

Question: Elyse Greenspan - Wells Fargo Securities, LLC - Analyst : Okay. And then I just -- you mentioned that there was, I guess, some timing that impacted on the first quarter, some kind of -- was it a pull forward from other quarters? I think it was 1% and then there was also going to be an impact in Q2.

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

Question: Gregory Peters - Raymond James Financial, Inc. - Analyst : So Pat, in your comments, I think it was -- yes, Pat, it was you, that talked about the bifurcation of renewal pricing in the small to mid accounts, which was you defined as less than $100,000, and then the mid to large account. Just wondering if you could provide some more color, because the commentary we're hearing in the marketplace around that seems to suggest that the larger account business might be under a little bit more rate pressure, specifically in the property areas.

Question: Gregory Peters - Raymond James Financial, Inc. - Analyst : That makes sense. For my second question, my follow-up question, I'm going to pivot back to the pending acquisition of AssuredPartners. This has been -- you've obviously been working very closely with them for the last several months now and trying to get this to the finish line. And I know you were pretty forthcoming with details about how you expected margin improvement to materialize and retention and organic revenue growth to develop. And I'm just curious, now that we're here in May, if you have a different perspective or if there's any different changes you have on the views on the opportunity with AssuredPartners for all of the areas I mentioned.

Question: Gregory Peters - Raymond James Financial, Inc. - Analyst : Got it. Just a detail question on that. Is the organic profile at Assured based on what you've seen just similar to what you're seeing inside your retail business?

Question: Gregory Peters - Raymond James Financial, Inc. - Analyst : Perfect. Thank you.

Question: Michael Zaremski - BMO Capital Markets - Analyst : Thanks. Good evening. Doug, or I think Pat might pull this too, the 1 point of timing benefit in Brokerage organic, is that in addition to the $26 million reversal on page 6 of the CFO commentary, which I'll admit is kind of over my head, in terms of its explanation? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 9:30PM, AJG.N - Q1 2025 Arthur J. Gallagher & Co. Earnings Call

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay. Got it. I'll make sure to go through that. Switching gears a bit, a question on also brokerage organic. The RPC stat that you began giving out in recent years, which is helpful, I think it was 4% this past quarter. And organic, obviously tremendous, 5 points-plus above that. But if we look kind of going back a few years that you disclosed RPC -- it's much -- the gap between organic and RPC is much narrower. Curious, should the gap stay wider than historical kind of implied by your guidance? And maybe part of the reason is reinsurance isn't included in RPC. But any -- am I asking a question you think is fair?

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay. That makes sense. If I could just sneak one last one, a follow-up in. You said that you'll respond to the, I guess, government about the Assured data request in a number of months. Any color on why this data request would take such a long time to --

Question: Michael Zaremski - BMO Capital Markets - Analyst : Appreciate that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 9:30PM, AJG.N - Q1 2025 Arthur J. Gallagher & Co. Earnings Call

Question: Mark Hughes - Truist Securities - Analyst : Yeah, thank you. Good afternoon. And if I heard you properly, you said the workers' comp up 5% versus I think it was up 1% last quarter. Is there something going on there or?

Question: Mark Hughes - Truist Securities - Analyst : And then on the property market, Pat, what's your sense of how this thing plays out? Obviously, it's sensitive to cat losses. So a lot of it depends. But in your experience where you've had kind of a run-up and then you start to see it turn back a little bit, how is this going to work over the next few quarters, couple of years?

Question: Mark Hughes - Truist Securities - Analyst : Very good. Well, everything -- it's definitely crazy out there with the Cavs in first place. I'm with you.

Question: Mark Hughes - Truist Securities - Analyst : Okay.

Question: Mark Hughes - Truist Securities - Analyst : Alright, I'll --.

Question: David Motemaden - Evercore ISI - Analyst : My question, I missed it, just on the RPC for this quarter. I think you had said it was 5% last quarter. It was trending around 4% the first two months of the quarter, this 1Q. Where did that end up for 1Q? And within your outlook, what are you guys assuming for the rest of the year?

Question: David Motemaden - Evercore ISI - Analyst : Yeah. What's embedded in the outlook that you gave -- the organic cadence that you gave. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 9:30PM, AJG.N - Q1 2025 Arthur J. Gallagher & Co. Earnings Call

Question: David Motemaden - Evercore ISI - Analyst : Got it. Thank you. And then I guess I'm also wondering that difference between the middle market and large account. I guess I'm wondering just I know that there's typically, the large account business is more cyclical and you guys are underweight that. But outside of that, when you look at your middle-market property book and small market property book, would you say that's more SCS exposed and, therefore, the pricing might be a little bit more durable there? Or is that just -- is that not the right way to think about it?

Question: David Motemaden - Evercore ISI - Analyst : Yeah. No, that makes sense. And then so I might be nitpicking here, but I think you guys have called out 5% organic in US retail and it sounds like that was maybe a little bit lighter than what you guys were talking about. In March. I think you guys were saying 6%. Was there anything behind that outside of just the general RPC trends that we spoke about?

Question: David Motemaden - Evercore ISI - Analyst : No, I definitely agree. Thank you,

Question: Katie Sakys - Autonomous Research - Analyst : Hi, thank you. I guess my first question, I wanted to go back to Doug's comments on the cadence of Brokerage organic growth that you expect to see for 2Q, 3Q, and 4Q? Back-of-the-envelope math, I'm kind of getting to the midpoint of the 6% to 8% full year guide. Which of those quarters, Doug, do you kind of see the most potential to upside versus your current estimates right now? And how does seasonality perhaps inform that view?

Question: Katie Sakys - Autonomous Research - Analyst : Great. Super helpful. And then I apologize if this next question is a little bit nitpicky, but I noticed in the CFO commentary that the average EBITDAC multiple that you guys paid for your tuck-ins this quarter was slightly elevated at 11.5 times versus the 10 to 11 times guide. Is that just a result of some noise from one-off transactions? Or is there any additional color that we should be aware of there?

Question: Katie Sakys - Autonomous Research - Analyst : Thank you.

Question: Andrew Andersen - Jefferies Financial Group Inc. - Analyst : Hey, good afternoon. The supplemental commissions within Brokerage were pretty strong. Was there any timing benefit there? And just maybe more broadly, could you talk about how you're thinking about those line items, the contingents and supplementals?

Question: Andrew Andersen - Jefferies Financial Group Inc. - Analyst : Got you. And then just within specialty, could you maybe talk about the growth difference between open brokerage and MGA? And I suppose where I'm going with this is, I'm not sure if the MGAs are kind of weighted to property. But if we're seeing some compression in property rate, could that impact your MGA growth in the back half of the year?

Question: Andrew Andersen - Jefferies Financial Group Inc. - Analyst : Thank you.

Question: Meyer Shields - Keefe, Bruyette & Woods North America - Analyst : Great, thanks so much. Two big picture questions, if I can. First, if my memory is correct then, one of the benefits you were talking about when you bought Gallagher Re was that you could introduce reinsurance brokerage capabilities to all of the carriers that you place business with. And I'm wondering whether the 20% organic growth that you had in the first quarter, does any -- is that still a factor? Or has that played out and this is just the execution of the current team? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 9:30PM, AJG.N - Q1 2025 Arthur J. Gallagher & Co. Earnings Call

Question: Meyer Shields - Keefe, Bruyette & Woods North America - Analyst : Okay. That's very helpful. The second question, I'm just trying to put this together in my head. You've got more leverage with the big accounts because they've got more swag, I think that's the way Pat put it. On the other hand, there's a higher propensity towards fees there. So overall, is the larger account business more or less sensitive, from your perspective, the revenue growth more or less sensitive to the cycle than in small and mid?

Question: David Motemaden - Evercore ISI - Analyst : Okay. Thank you.

Question: Cave Montazeri - Deutsche Bank - Analyst : I know you guys have a pretty good real-time pulse on the economy. Earlier in your prepared remarks, you mentioned the US labor market was still strong. But just wondering in your conversations with clients, especially the middle market clients, what are they staying on the impact of tariffs on their business?

Question: Cave Montazeri - Deutsche Bank - Analyst : Makes sense. My follow-up is on your international organic growth. I think you mentioned 4% if I remember correctly, I guess it's not a bad number in absolute terms, but it is a bit of a drag on the overall brokerage organic. Could you give us a bit of maybe regional color on what you're seeing internationally? Maybe like some regions being better than others?

Question: Cave Montazeri - Deutsche Bank - Analyst : Yeah, that makes sense. And if I could squeeze one more in on the topic of international, like from an M&A inorganic growth point of view, internationally, like where is your appetite geographically, where you think there's going to be good opportunities to grow in the future?

Question: Cave Montazeri - Deutsche Bank - Analyst : Okay. Thank you.