Arthur J. Gallagher & Co. (AJG) 8-K And Third Quarter 2004 Financial Results

Exhibit 99

FOR IMMEDIATE RELEASE	CONTACT:	Marsha J. Akin
		Investor Relations
		(630) 773-3800
		www.ajg.com

ARTHUR J. GALLAGHER & CO. ANNOUNCES

SUBPOENA FROM CONNECTICUT ATTORNEY GENERAL,

ELIMINATION OF VOLUME & PROFIT BASED CONTINGENT COMMISSIONS,

AND THIRD QUARTER 2004 FINANCIAL RESULTS

ITASCA, IL, October 26, 2004 — Arthur J. Gallagher & Co. today received a subpoena from the Connecticut Attorney General requesting information concerning possible violations by the Company of the Connecticut antitrust laws in connection with the solicitation of bids for insurance. Gallagher intends to cooperate fully.

J. Patrick Gallagher Jr., President and Chief Executive Officer, stated that Gallagher will not participate as a retail broker in volume-based or profit-based contingent commission agreements effective January 1, 2005. In addition, when allegations of bid rigging and price fixing recently came to light at Marsh, management retained independent counsel to perform an internal review. While the review is at an early stage, management has no knowledge that Gallagher has engaged in any improper practices.

Gallagher today also reported its financial results for the quarter and nine month period ended September 30, 2004. A printer-friendly format is available atwww.ajg.com.

        Quarter Ended September 30

Segment	Revenues						Net Earnings						Diluted Earnings Per Share
	3rd Q 04		3rd Q 03		Chg		3rd Q 04			3rd Q 03			3rd Q 04			3rd Q 03
	($ in millions)						($ in millions)
Brokerage	$	241.4	$	222.3	9	%	$	45.2		$	41.7		$	0.48		$	0.45
Risk Management		94.7		83.0	14	%		12.7			8.6			0.13			0.09
Brokerage & Risk Management		336.1		305.3	10	%		57.9			50.3			0.61			0.54
Financial Services		27.9		18.5	—			(3.5	)		(1.4	)		(0.04	)		(0.02	)
Impact of FIN 46		9.0		21.2	—			—			—			—			—
Total Company	$	373.0	$	345.0	8	%	$	54.4		$	48.9		$	0.57		$	0.52
Nine Months Ended September 30
Segment	Revenues						Net Earnings						Diluted Earnings Per Share
	9 Mths 04		9 Mths 03		Chg		9 Mths 04			9 Mths 03			9 Mths 04			9 Mths 03
	($ in millions)						($ in millions)
Brokerage	$	670.4	$	613.1	9	%	$	106.7		$	90.4		$	1.13		$	0.97
Risk Management		275.9		238.0	16	%		34.6			24.4			0.37			0.26
Brokerage & Risk Management		946.3		851.1	11	%		141.3			114.8			1.50			1.23
Financial Services		77.2		26.0	—			(1.9	)		(17.8	)		(0.02	)		(0.19	)
Impact of FIN 46		69.9		21.2	—			—			—			—			—
Total Company	$	1,093.4	$	898.3	22	%	$	139.4		$	97.0		$	1.48		$	1.04

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“This was another strong quarter for Gallagher despite softening rates in the insurance marketplace,” said J. Patrick Gallagher, Jr., President and Chief Executive Officer. “On a combined basis, our Brokerage and Risk Management segments posted excellent results for the third quarter:

• 13% growth in earnings per share,

• 10% growth in revenues, of which 5% is organic,

• 9% growth in pretax earnings, and

• 21% pretax margin, despite margin drag of 0.4% related to expensing stock-based compensation, 0.4% related to foreign currency translation and 0.3% related to external Sarbanes-Oxley 404 implementation costs.”

“During the third quarter, we saw four major hurricanes hit Florida and the East Coast. Within hours after each storm, Gallagher professionals were on the ground helping our clients repair their businesses and restore their lives. Every day we help our customers assess, manage and mitigate risks, which leads to consistent growth in value for our shareholders.”

Brokerage Segment Third Quarter Highlights

• 7% growth in earnings per share.

• 9% growth in revenues, of which 2% is organic.

• 22% pretax margin. As with prior quarters, there was margin drag of 0.5% related to expensing stock-based compensation and 0.5% related to foreign currency translation. In addition, pretax margins were reduced 0.6% by increased amortization of intangible assets and 0.7% by reduced contingent commissions.

• Closed 4 acquisitions and pipeline remains strong.

• Contingent commissions were $2.9 million in the third quarter 2004 versus $4.2 million in the third quarter 2003. The following is a summary of contingent commissions. Expenses directly associated with these agreements are not specifically identified, but are minimal.

	Nine Month Period Ended September 30, 2004
	Revenues ($ in millions)		Approximate Number of
			Agreements	Carriers
Contingent commission revenue from:
Local contingent commission contracts and programs	$	22.8	535	160
Local managing general agent, managing general underwriter and program administration contracts		5.1	35	25
National contingent commission contracts		3.8	20	12
	$	31.7	590	197

Risk Management Segment Third Quarter Highlights

• 44% growth in earnings per share.

• 14% growth in revenues, all of which is organic.

• 41% growth in pretax earnings.

• 17% pretax margin.

Financial Services Segment Highlights

• Synthetic fuel production was ahead of prior year, resulting in a 20% effective tax rate for the company in 2004 versus 24% in 2003.

• Adoption of FIN 46 - In the third quarter of 2003, Gallagher adopted a new accounting pronouncement, FASB Interpretation No. 46 (FIN 46) - “Consolidation of Variable Interest Entities,” which required the company to consolidate one investment not previously consolidated because the company does not control the investment through a majority voting interest. Previously reported financial statements were not restated for the adoption of FIN 46. During the third quarter of 2004, Gallagher sold a portion of its interest in this investment, which eliminated the requirement to consolidate the investment under the FIN 46 rules. This investment is now accounted for using equity method accounting.

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The company will host a webcast conference call on Wednesday, October 27, 2004 at 9:00 a.m. ET to further discuss these quarterly results. To listen, please go to www.ajg.com.

Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in nine countries and does business in more than 100 countries around the world through a network of correspondent brokers and consultants. Gallagher is traded under the symbol “AJG” on the New York Stock Exchange.

This press release may contain certain forward-looking statements relating to future results. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expected, depending on a variety of factors such as changes in worldwide and national economic conditions, changes in premium rates and in insurance markets generally and changes in securities and fixed income markets as well as developments in the area of tax legislation. Please refer to our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, for a more detailed discussion of these factors.

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Arthur J. Gallagher & Co.

Segment Statement of Earnings

(Unaudited - in millions except per share data)

	3 Months Ended Sep 30, 2004			3 Months Ended Sep 30, 2003			9 Months Ended Sep 30, 2004			9 Months Ended Sep 30, 2003
BROKERAGE SEGMENT
Commissions	$	210.0		$	194.4		$	586.9		$	543.3
Fees		41.3			36.3			106.7			95.1
Investment income - fiduciary		2.9			1.7			8.3			5.2
Gross revenues		254.2			232.4			701.9			643.6
Less brokerage		(12.8	)		(10.1	)		(31.5	)		(30.5	)
Revenues		241.4			222.3			670.4			613.1
Compensation		132.0			120.6			383.9			353.5
Operating		45.4			41.3			130.4			123.9
Depreciation		3.3			3.0			9.6			9.0
Amortization		4.2			2.5			13.2			6.8
Expenses		184.9			167.4			537.1			493.2
Earnings before income taxes		56.5			54.9			133.3			119.9
Provision for income taxes		11.3			13.2			26.6			29.5
Net earnings	$	45.2		$	41.7		$	106.7		$	90.4
Diluted net earnings per share	$	0.48		$	0.45		$	1.13		$	0.97
Growth - revenues		9	%		12	%		9	%		16	%
Organic growth in commissions and fees (1)		2	%		9	%		3	%		12	%
Growth - pretax earnings		3	%		16	%		11	%		17	%
Compensation expense ratio		52	%		52	%		55	%		55	%
Operating expense ratio		18	%		18	%		19	%		19	%
Pretax profit margin		22	%		24	%		19	%		19	%
Effective tax rate		20	%		24	%		20	%		25	%
RISK MANAGEMENT SEGMENT
Fees	$	94.3		$	82.8		$	274.8		$	237.3
Investment income - fiduciary		0.4			0.2			1.1			0.7
Revenues		94.7			83.0			275.9			238.0
Compensation		51.8			46.3			150.3			132.0
Operating		24.5			23.0			74.8			66.7
Depreciation		2.4			2.4			7.2			7.1
Amortization		0.1			—			0.3			—
Expenses		78.8			71.7			232.6			205.8
Earnings before income taxes		15.9			11.3			43.3			32.2
Provision for income taxes		3.2			2.7			8.7			7.8
Net earnings	$	12.7		$	8.6		$	34.6		$	24.4
Diluted net earnings per share	$	0.13		$	0.09		$	0.37		$	0.26
Growth - revenues		14	%		16	%		16	%		14	%
Organic growth in fees (1)		14	%		16	%		16	%		14	%
Growth - pretax earnings		41	%		74	%		34	%		22	%
Compensation expense ratio		55	%		56	%		55	%		56	%
Operating expense ratio		26	%		28	%		27	%		28	%
Pretax profit margin		17	%		14	%		16	%		14	%
Effective tax rate		20	%		24	%		20	%		25	%
BROKERAGE & RISK MANAGEMENT COMBINED
Commissions	$	210.0		$	194.4		$	586.9		$	543.3
Fees		135.6			119.1			381.5			332.4
Investment income - fiduciary		3.3			1.9			9.4			5.9
Gross revenues		348.9			315.4			977.8			881.6
Less brokerage		(12.8	)		(10.1	)		(31.5	)		(30.5	)
Revenues		336.1			305.3			946.3			851.1
Compensation		183.8			166.9			534.2			485.5
Operating		69.9			64.3			205.2			190.6
Depreciation		5.7			5.4			16.8			16.1
Amortization		4.3			2.5			13.5			6.8
Expenses		263.7			239.1			769.7			699.0
Earnings before income taxes		72.4			66.2			176.6			152.1
Provision for income taxes		14.5			15.9			35.3			37.3
Net earnings	$	57.9		$	50.3		$	141.3		$	114.8
Diluted net earnings per share	$	0.61		$	0.54		$	1.50		$	1.23
Growth - revenues		10	%		13	%		11	%		16	%
Organic growth in commissions and fees (1)		5	%		11	%		7	%		13	%
Growth - pretax earnings		9	%		23	%		16	%		18	%
Compensation expense ratio		53	%		53	%		55	%		55	%
Operating expense ratio		20	%		20	%		21	%		22	%
Pretax profit margin		21	%		21	%		18	%		17	%
Effective tax rate		20	%		24	%		20	%		25	%

See notes to third quarter 2004 earnings release and non-GAAP financial measures on page 6.

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Arthur J. Gallagher & Co.
Segment Statement of Earnings
(Unaudited - in millions except per share data)
	3 Months Ended Sep 30, 2004			3 Months Ended Sep 30, 2003			9 Months Ended Sep 30, 2004			9 Months Ended Sep 30, 2003
FINANCIAL SERVICES SEGMENT
Investment income	$	25.3		$	16.9		$	70.0		$	50.1
Impact of FIN 46 on investment income		9.0			21.2			69.9			21.2
Investment gains (losses)		2.6			1.6			7.2			(24.1	)
Revenues		36.9			39.7			147.1			47.2
Investment expenses		27.1			16.6			65.9			38.1
Impact of FIN 46 on investment expenses		8.6			20.0			67.2			20.0
Interest		2.6			2.0			6.9			6.1
Depreciation		2.6			1.7			6.8			5.4
Impact of FIN 46 on depreciation expense		0.4			1.2			2.7			1.2
Expenses		41.3			41.5			149.5			70.8
Earnings (loss) before income taxes		(4.4	)		(1.8	)		(2.4	)		(23.6	)
Provision (benefit) for income taxes		(0.9	)		(0.4	)		(0.5	)		(5.8	)
Net earnings (loss)	$	(3.5	)	$	(1.4	)	$	(1.9	)	$	(17.8	)
Diluted net earnings (loss) per share	$	(0.04	)	$	(0.02	)	$	(0.02	)	$	(0.19	)
Consolidated Statement of Earnings
(Unaudited - in millions except per share data)
	3 Months Ended Sep 30, 2004			3 Months Ended Sep 30, 2003			9 Months Ended Sep 30, 2004			9 Months Ended Sep 30, 2003
TOTAL COMPANY
Commissions	$	210.0		$	194.4		$	586.9		$	543.3
Fees		135.6			119.1			381.5			332.4
Investment income - fiduciary		3.3			1.9			9.4			5.9
Investment income - all other		34.3			38.1			139.9			71.3
Investment gains (losses)		2.6			1.6			7.2			(24.1	)
Gross revenues		385.8			355.1			1,124.9			928.8
Less brokerage		(12.8	)		(10.1	)		(31.5	)		(30.5	)
Revenues		373.0			345.0			1,093.4			898.3
Compensation		183.8			166.9			534.2			485.5
Operating		69.9			64.3			205.2			190.6
Investment expenses		35.7			36.6			133.1			58.1
Interest		2.6			2.0			6.9			6.1
Depreciation		8.7			8.3			26.3			22.7
Amortization		4.3			2.5			13.5			6.8
Expenses		305.0			280.6			919.2			769.8
Earnings before income taxes		68.0			64.4			174.2			128.5
Provision for income taxes		13.6			15.5			34.8			31.5
Net earnings	$	54.4		$	48.9		$	139.4		$	97.0
Diluted net earnings per share	$	0.57		$	0.52		$	1.48		$	1.04
Dividends declared per share	$	0.25		$	0.18		$	0.75		$	0.54
Other Information
Diluted weighted average shares outstanding (000s)		95,053			93,716			94,449			93,213
Common shares repurchased (000s)		615			1,140			1,170			1,894
Annualized return on beginning tangible net worth (2)								47	%		33	%
Number of acquisitions closed		4			2			14			7
Workforce at end of period (includes acquisitions)								7,824			7,120
Earnings Before Investment (Gains) Losses, Depreciation, Amortization and Stock Compensation Expense (3)
Net earnings	$	54.4		$	48.9		$	139.4		$	97.0
Investment (gains) losses		(2.6	)		(1.6	)		(7.2	)		24.1
Depreciation		8.7			8.3			26.3			22.7
Amortization		4.3			2.5			13.5			6.8
Amortization of deferred comp and restricted stock		2.5			2.2			7.3			5.4
Stock compensation expense		1.4			—			3.9			—
Tax effect		(2.9	)		(2.7	)		(8.8	)		(14.5	)
Earnings before investment (gains) losses, depreciation, amortization and stock compensation expense	$	65.8		$	57.6		$	174.4		$	141.5
On a diluted per share basis	$	0.69		$	0.61		$	1.85		$	1.52

See notes to third quarter 2004 earnings release and non-GAAP financial measures on page 6.

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Arthur J. Gallagher & Co.

Consolidated Balance Sheet

(Unaudited - in millions except per share data)

	Sep 30, 2004			Dec 31, 2003
Cash and cash equivalents	$	297.3		$	193.6
Restricted cash		488.3			437.6
Trading securities		—			5.0
Unconsolidated investments - current		25.9			26.9
Premiums and fees receivable		1,246.4			1,286.4
Other current assets		123.9			158.4
Total current assets		2,181.8			2,107.9
Unconsolidated investments - noncurrent		130.6			121.0
Fixed assets related to consolidated investments - net		198.3			205.2
Other fixed assets - net		60.8			61.0
Deferred income taxes		164.4			137.8
Other noncurrent assets		55.2			45.8
Goodwill - net		166.2			138.3
Amortizable intangible assets - net		127.7			84.6
Total assets	$	3,085.0		$	2,901.6
Premiums payable to insurance and reinsurance companies	$	1,753.2		$	1,743.5
Accrued compensation and other accrued liabilities		227.5			219.3
Unearned fees		37.7			27.3
Income taxes payable		19.3			24.3
Other current liabilities		15.8			16.0
Corporate related borrowings		—			—
Investment related borrowings - current		41.4			30.9
Total current liabilities		2,094.9			2,061.3
Investment related borrowings - noncurrent		141.7			122.1
Other noncurrent liabilities		105.5			99.1
Total liabilities		2,342.1			2,282.5
Stockholders’ equity:
Common stock - issued and outstanding		92.4			90.0
Capital in excess of par value		155.3			105.5
Retained earnings		513.1			442.3
Unearned deferred compensation		(12.7	)		(9.6	)
Unearned restricted stock		(5.2	)		(9.1	)
Total stockholders’ equity		742.9			619.1
Total liabilities and stockholders’ equity	$	3,085.0		$	2,901.6
Other Information
Tangible net worth (4)	$	449.0		$	396.2
Book value per share	$	8.04		$	6.88
Tangible book value per share (5)	$	4.86		$	4.40

Notes to Third Quarter 2004 Earnings Release and Non-GAAP Financial Measures

This exhibit contains supplemental non-GAAP financial information within the meaning of Regulation G of the SEC’s rules. Consistent with Regulation G, a description of such information is provided below and a reconciliation of certain of such items to U.S. generally accepted accounting principles (GAAP) is provided elsewhere in this press release. Gallagher believes the items described below provide meaningful additional information, which may be helpful to investors in assessing certain aspects of Gallagher’s operating performance and financial condition that may not be otherwise apparent from GAAP. Industry peers provide similar supplemental information, although they may not use the same or comparable terminology and may not make identical adjustments. This non-GAAP information should be used in addition to, but not as a substitute for, the GAAP information.

Non-GAAP Measures Defined

(1) Organic growth excludes the first twelve months of net commission and/or fee revenues generated from the acquisitions accounted for as purchases and the net commission and/or fee revenues related to operations disposed of in each year presented. These commissions and fees are excluded from organic revenues in order to determine the revenue growth that is associated with the operations that were a part of Gallagher in both the current and prior year.

(2) Represents year-to-date net earnings divided by total stockholders’ equity, less net balance of goodwill and amortizable intangible assets, as of the beginning of the year.

(3) Represents net earnings before the after-tax effect of investment gains (losses), depreciation, amortization, amortization of deferred compensation and restricted stock expense and stock compensation expense.

(4) Represents total stockholders’ equity less net balance of goodwill and amortizable intangible assets.

(5) Represents tangible net worth divided by the common shares outstanding at the end of the period.

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Arthur J. Gallagher & Co.
Unconsolidated Investment Summary
(Unaudited - in millions)
													September 30, 2004
	September 30, 2004						December 31, 2003						LOCs & Financial Guarantees		Funding Commitments
	Current			Noncurrent			Current			Noncurrent
Unconsolidated Investments:
Direct and indirect investments in Asset
Alliance Corporation (AAC)	$	0.5		$	45.9		$	1.3		$	49.8		$	—	$	—
Low income housing (LIH) developments:
Bridge loans		3.6			—			9.5			—			—		—
Partnership interests		—			1.9			—			3.1			—		—
LIH Developer		—			9.1			—			7.6			—		—
Alternative energy investments:
Owned partnership interests		0.6			18.9			1.5			28.3			4.4		0.2
Biogas project		—			14.0			—			—			—		—
Partnership interest installment sales		20.6			14.5			14.6			8.0			—		—
Bermuda insurance investments		—			20.4			—			20.4			6.7		—
Real estate, venture capital and other investments		0.6			5.9			—			3.8			—		3.5
Total unconsolidated investments		25.9			130.6			26.9			121.0			11.1		3.7
Non-recourse borrowings - Biogas project		(0.2	)		(13.8	)		—			—			—		—
Net unconsolidated investments	$	25.7		$	116.8		$	26.9		$	121.0		$	11.1	$	3.7
Consolidated Investment Summary
(Unaudited - in millions)
													September 30, 2004
							September 30, 2004			December 31, 2003			LOCs & Financial Guarantees		Funding Commitments
Home office land and building:
Fixed assets							$	101.1		$	100.9		$	—	$	—
Accumulated depreciation								(15.2	)		(13.2	)		—		—
Non-recourse borrowings - current								(0.9	)		(0.8	)		—		—
Recourse borrowings - current								—			—			—		—
Non-recourse borrowings - noncurrent								(73.4	)		(74.0	)		—		—
Recourse borrowings - noncurrent								(3.0	)		(3.0	)		—		—
Net other consolidated assets and liabilities								3.5			2.2			—		—
Net investment								12.1			12.1			—		—
Florida community development:
Fixed assets								61.7			56.0			—		—
Accumulated depreciation								(0.6	)		—			—		—
Non-recourse borrowings - current								(18.3	)		(10.7	)		—		—
Recourse borrowings - current								(17.0	)		(17.0	)		—		—
Non-recourse borrowings - noncurrent								(0.1	)		(0.2	)		—		—
Recourse borrowings - noncurrent								(12.4	)		(12.4	)		—		—
Net other consolidated assets and liabilities								(3.0	)		(3.6	)		12.8		1.5
Net investment								10.3			12.1			12.8		1.5
Airplane leasing company:
Fixed assets								51.8			51.8			—		—
Accumulated depreciation								(13.2	)		(10.5	)		—		—
Non-recourse borrowings - current								(2.5	)		(2.4	)		—		—
Recourse borrowings - current								—			—			—		—
Non-recourse borrowings - noncurrent								(30.6	)		(32.5	)		—		—
Recourse borrowings - noncurrent								—			—			—		—
Net other consolidated assets and liabilities								0.9			0.9			—		—
Net investment								6.4			7.3			—		—
Syn/Coal partnerships:
Fixed assets								14.2			35.2			—		—
Accumulated depreciation								(1.5	)		(15.0	)		—		—
Non-recourse borrowings - current								(2.5	)		—			—		—
Recourse borrowings - current								—			—			—		—
Non-recourse borrowings - noncurrent								(8.4	)		—			—		—
Recourse borrowings - noncurrent								—			—			—		—
Net other consolidated assets and liabilities								4.2			0.6			—		—
Net investment								6.0			20.8			—		—
Total consolidated investments:
Fixed assets								228.8			243.9			—		—
Accumulated depreciation								(30.5	)		(38.7	)		—		—
Non-recourse borrowings - current								(24.2	)		(13.9	)		—		—
Recourse borrowings - current								(17.0	)		(17.0	)		—		—
Non-recourse borrowings - noncurrent								(112.5	)		(106.7	)		—		—
Recourse borrowings - noncurrent								(15.4	)		(15.4	)		—		—
Net other consolidated assets and liabilities								5.6			0.1			12.8		1.5
Net investment							$	34.8		$	52.3		$	12.8	$	1.5

(7 of 7)

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