Arthur J. Gallagher & Co. Q3 2024 Earnings Call Summary

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

Question: Michael Zaremski - BMO Capital Markets - Analyst : Hey. Thanks for the questions. First one is on the bridge from -- in the brokerage segment from 3Q organic to 4Q organic to kind of the 2 point uplift sequentially. Are you saying most of that is life insurance? And if not, it sounds like RPC was still kind of more muted. But are you saying RPC is kind of -- is lifting off and is trending higher into 4Q? Just trying to understand some of the pieces there.

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay. Got it. So no other seasonality or anything there, okay.

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay. That makes sense. Switching gears a bit to, I guess, the margins or just if I look at fiduciary investment income, looks like it was much better than expected. But I think you're guiding down. What caused the spike and why is it likely to go back down?

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay.

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay. Got it. And I guess, Doug, as a follow-up to some of the comments you made earlier on renewal price change. So actually, from a number of the carriers we've seen so far, we have seen an uptick on the casualty side in terms of pricing. And I know in the past, too, you guys have had a view that what you're hearing from carriers is that they are under earning on some of the major casualty lines. So is that still kind of in your thought process as you think you gave us some tidbits on how '25 could play out that there could be some price hardening on the casualty side?

Question: Robert Cox - Goldman Sachs - Analyst : Thanks. So I appreciate all the guidance on the brokerage organic. I was just curious about the components. I think in the beginning of this year, you guys had talked about maybe it was a third, a third, a third exposure new business pricing. I was just curious how you guys expect that might unfold in 2025.

Question: Robert Cox - Goldman Sachs - Analyst : Okay. Got it. That's helpful. Yes. Just curious, maybe it's a little bit tough to go through all the comments, but it seemed like maybe international retail decelerated a little bit more than the US this quarter. I guess I was just curious also on your views between international and US retail going into next year.

Question: Elyse Greenspan - Wells Fargo - Analyst : Hi, thanks. Good evening. My first question, embedded within your fourth-quarter guidance, the 8% brokerage organic, is there any assumption for an impact on contingent commissions from the recent storms?

Question: Elyse Greenspan - Wells Fargo - Analyst : Okay. And then within the guidance, right, I think you guys said six to eight brokerage for next year. Are you assuming -- what are you assuming for the benefits business, right? I understand there was some seasonality this year. Are you just assuming it's kind of in line with the rest of the segment? I know you typically wait a little longer to give the by-segment guidance, but just because that's brought on some volatility this year, I wanted to get a sense of where you think that will head next 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. OCTOBER 24, 2024 / 9:15PM, AJG.N - Q3 2024 Arthur J. Gallagher & Co. Earnings Call

Question: Elyse Greenspan - Wells Fargo - Analyst : For next year?

Question: Elyse Greenspan - Wells Fargo - Analyst : Okay. And then with the M&A, I know like deal flow right, it's probably been a little lighter through the first three quarters, right, than what we've seen in prior years. Do you guys think just given it's a presidential election year, has that caused, I guess, a slowdown in just the closing of transactions? And are you expecting more activity in the fourth quarter early next year? How do you guys see things on that front?

Question: Elyse Greenspan - Wells Fargo - Analyst : And then one last one on like that corporate line within the corporate segment, Doug. I thought you said that it was worse, right, than September IR Day because of the FX remeasurement, but that reversed in the fourth quarter, but then the Q4 guide for corporate didn't change. Are you just not modeling that in yet? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 9:15PM, AJG.N - Q3 2024 Arthur J. Gallagher & Co. Earnings Call

Question: Gregory Peters - Raymond James - Analyst : Building on your last answer on acquisitions, one of the things that struck out -- or stuck out to me, I should say, as well as going through the supplement was the weighted average multiple for tuck-in pricing of acquisitions came down a lot in the third quarter. Is there any -- maybe you can just help me understand what happened, why the multiple came down because I don't feel like multiples are coming down in the marketplace. And Pat, in your prepared remarks, you seem to emphasize your price discipline a little bit more than usually referenced in talking about tuck-in acquisitions?

Question: Gregory Peters - Raymond James - Analyst : And the multiple for the third-quarter acquisitions came down materially like I felt like I take a step back to time.

Question: Gregory Peters - Raymond James - Analyst : Okay. Another sort of nitpicking item. You were going through your earnings press release and I was going through the adjustments to earnings to get your adjusted EBITDAC on page 5 of brokerage. And one of the things that stuck out to me is just a huge jump up in workforce and lease termination related charges in the year this year versus last year in the third quarter versus the third last year. Is there something going on on a bigger sale? Is this more offshoring that's going on? Or maybe you could just help. I know it's a small item inside your income statement. Maybe you could just give us a sense of what's going on with this. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 9:15PM, AJG.N - Q3 2024 Arthur J. Gallagher & Co. Earnings Call

Question: Gregory Peters - Raymond James - Analyst : Great. And then just step back macro question, and this will be the last one. I know your commercial customers set their budgets for the year. In the past, given the robust rate increases that you've had to sell, it seems like the market is beginning to stabilize a little bit more than, say, for it was two years ago. How are the budgets. When you hear from your customers, how are the budgets changing for their insurance spend? Is it you're seeing more flat budgets? Are you still seeing them assume increases. Give us a sense on there.

Question: Dean Criscitiello - KBW - Analyst : I was hoping if you guys could provide maybe some additional color on the sequential decrease in the organic growth in brokerage, especially in the context of that renewal premium change holding up pretty strong sequentially.

Question: Dean Criscitiello - KBW - Analyst : Got it. That makes sense. And then my second one, a few of your competitors have made some large acquisitions to help improve their middle market capabilities. And I was wondering what implications do you think that have on the competitive environment going forward, sort of being that you guys are adopting player in that space?

Question: Mark Hughes - Truist Securities - Analyst : Doug, did you give early margin thoughts for 2025 for brokerage and risk management?

Question: Mark Hughes - Truist Securities - Analyst : Very good. And then the -- could you give organic broken out by the wholesale components and then reinsurance, I think you might have given those collectively at up 8%, but do you happen to have the components of that?

Question: Mark Hughes - Truist Securities - Analyst : Understood. And then any comment, Pat, on the mix shift out of admitted into the [P&F] lines? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 9:15PM, AJG.N - Q3 2024 Arthur J. Gallagher & Co. Earnings Call

Question: Alex Scott - Barclays - Analyst : So I mean, when I hear what you're saying about reinsurance and the strength and growth there, the wholesale business, it seems like it's growing very nicely as well. When I look at the 6% and I guess, run rating closer to 7% and change. But does that mean -- I guess it obviously means that the businesses other than reinsurance and wholesale like the more core retail is doing something lower, is there anything that's causing some of the price there to not flow through? Is that just maybe some of the property deceleration we saw? I'm just trying to understand that piece of it specifically. What are some of the trends you're seeing in puts and takes headed into next year for the core retail piece of it?

Question: Alex Scott - Barclays - Analyst : Got it. And then maybe if we can go back to reinsurance. I mean, the growth rate you're anticipating sounds pretty robust despite the flight pricing. And I just want to see if you could add some color around that. I mean does that have to do with demand? Can you talk a bit about what you're seeing in terms of your clients' demand for reinsurance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 24, 2024 / 9:15PM, AJG.N - Q3 2024 Arthur J. Gallagher & Co. Earnings Call

Question: Katie Sakys - Autonomous Research - Analyst : Thank you for the question and I apologize, (inaudible) just a fire (inaudible) right now. I want to take back to the subject of valuations. So you're thinking about acquisitions in the middle market that are really concentrated in excess of $15 million of revenue. We've seen a couple of those lately. And the multiples on those deals have been a lot higher than we've seen in the past. I was curious how that compares to what you guys are seeing for those larger middle-market deals and whether your appetite to participate in larger acquisitions has shifted at all?

Question: David Motemaden - Evercore ISI - Analyst : Just had a question in brokerage and the contingents were up 24% on an organic basis. I was wondering if you could just talk about what was driving that in the quarter?

Question: David Motemaden - Evercore ISI - Analyst : Got it. Okay. That's helpful. And then I guess just a bigger picture question. I heard the commentary on the term sheets being prepared or that in the process of getting signed with $700 million of revenues. Do you have any stats historically on just how many of those close? Like what percentage of those closed in the next year? Just to help us level set how much the contribution could be going forward?

Question: David Motemaden - Evercore ISI - Analyst : Okay. That's good to hear. And then just finally, so it sounded like the US retail P&C organic, it sounded like that slowed a little bit. I think it was 5%, if I heard that right, and I think it was 6% last quarter. Was that just the large account property business that you were talking about that has reaccelerated here in the fourth quarter?

Question: Grace Carter - Bank of America - Analyst : I was hoping we could talk about the contingents a little bit more, just given kind of the ongoing conversation around the casualty market, I was wondering if -- how you all are thinking about any potential risk of maybe some of the pressures from the casualty line that we saw in contingents last quarter resurfacing over the next few months.

Question: Grace Carter - Bank of America - Analyst : And just a quick follow-up on the lumpy life sales. If I'm understanding correctly, you are expecting pretty much all of the timing issue to work itself out in 4Q? Or should we expect any sort of lagging impact from that in early 2025 as well?

Question: Michael Zaremski - BMO Capital Markets - Analyst : Great. Just a quick follow-up on life insurance. So just ballpark, what percentage of your brokerage revenues are life insurance. And I don't know if you want to break it out into this new product that might be more lumpy or just growing faster over time than traditional life.

Question: Michael Zaremski - BMO Capital Markets - Analyst : Okay. That helps explain why it can move organic that much.