AJG - Earnings call transcript Q1 2018 | Arthur J. Gallagher & Co.

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Operator

Good afternoon and welcome to Arthur J. Gallagher & Company's First Quarter 2018 Earnings Conference Call. Participants have been placed on a listen-only mode.

Your lines will be opened for questions following the presentation. Today's call is being recorded.

objections, disconnect any this have you you at may time. If

within this the questions, include statements certain update securities discussed risks comments described no subject the of statements Commission. conference These may meaning forward-looking laws. made forward-looking differ may and Actual to Some to reports this statements. response during today call, are of in answers constitute uncertainties the the with undertakes filed these those company and on to discussed in the call obligation results materially or company's Securities Exchange from and given

section for the the these reconciliations now J. Arthur measures, begin. In the recent you of It Patrick website. discussed J. introduce addition, regarding well to Relations Gallagher, refer and my to of in most on as & Chairman, company's this President CEO is Gallagher, may Company. materials call please Mr. information earning the Investor measures and pleasure Gallagher other of as release non-GAAP other the

J. Patrick Gallagher, Jr.

you With of for our earnings as Officer, Heads joining well XXXX and divisions. first operating Doug quarter much. us call. thank you as Good Thank today our Chief for is the Howell, Financial afternoon our me everyone very

sales culture. improving four number quarter, maintaining We number to acquisitions; I'm fourth, aggressive to As and drive I do two, unique each of and touch key on growing productivity excellent mergers three, our value. are, team; had XXXX. going we start quality; number an growth, our are the These components through shareholder to strategy our and an one, organic

from and us for a margin organic and growth, strategy expansion. This revenue year. delivered position we quarter, our During continued the first revenue total great outstanding acquisition excellent growth, merger growth tuck-in another puts in steady strong

Brokerage Let segment. with our about me some comments start

was divisions First across X.X% of strong growth reflecting all globally. all organic in quarter our

X% and the lines detail. pricing the modest the some property U.S. quarter, wholesale you Property up casualty give more across down to quarter. specialty organic seeing are higher and largest in up point. recent to up our was lines comp flat about In are during first with many generated auto with which increases first business casualty is up exposures U.S., commercial activity. X.X% X%. retail me X% the a a economic Let points Brokerage X%, while positive are is trending data Insured of consistent and price workers' flat X% U.S.

So the was first Internationally, and Canada far X%, in in in quarter. pricing around New up some in was property our with casualty strength auto. quarter about mid-single pricing Australia, insurance upward digit is of UK businesses classes. to New about the X% X%. Property Australia, Zealand organic commercial growth organic the April, range in and across casualty is all flat generated about movement were Zealand similar with property

Our are a UK specialty London a operations pricing Canadian seem nearing and rates flattish our be operations seeing bottom. in environment to while

generating Our business of strong employee a growth also X%. around quarter, organic benefits revenue had

growth looks world, it a is X%. exposure be were we did giving a bodes bit below than slight which from XXXX. rate and are organic a post sum when This when well So or better and able year slightly organic for we up headwind. tailwind, I flattish or rate together modest a the means ago XXXX, similar our should in exposure to change it all it positive call around a like This

and for warm all Gallagher welcome of partners our would revenue. extend I new we our These of which more six new million successful the us professionals. joining growing Second, mergers see of annualized add capabilities, acquisitions, and should they acquisitions. they embody about see culture vast to our family being In $XX like our very themselves Gallagher. I thank completed partners together a with to and quarter, brokerage

forward, almost totaling with either opportunities, revenue, term about Looking acquisition million agreed associated sheets $XXX merger full and of tuck-in prepared. is XX attractive pipeline many upon of our or being

Now, we of acquisitions don't these to all close. expect

get fair we share. our believe, we will However,

Third, automation. at management our optimizing Day, business, systems opportunities service our of up organic in and efficiencies including higher-quality points was standardization Brokerage number will XX a further quality. basis hard nice us result harmonizing to and is X%. through deliver a become help our to to quarter, really about Adjusted EBITDAC scale. clients. leverage of and and organization better, our and productivity working small Investor team All We margin approach on the across The find these the discussed improving further faster March our

So for the is prior growth delivered first of margin of EBITDAC basis organic, adjusted revenue year. points up adjusted the adjusted and growth total X% quarter EBITDAC XX.X%, X.X% we of our over X%, Brokerage of XX segment, which

Another really, really the team. Brokerage solid performance by

segment, our Next, Management like Bassett. Risk I would is move which to to primarily Gallagher

XX% fueled Gallagher days. by management The of we from quarter. First launched domestic where advancements hosted system recently new international more The excellent while the information quarter was meetings X%, organic RIMS client than Bassett growth an XXX in over organic X.X%, returned the and prospect several products new LUMINOS, showcased posted annual business three RIMS. team our over at conference and was course leading risk team

workers our Care, very score couple. Litigation Overall, demonstrated a counsel just medical focused For to Defense, our further platform was example, claims event GB card analytical GB successful performance compensation name management. outcome management to we approach and defense our rolled RIMS comprehensive out and best-in-class a

and in sense Number true we the see X% organic XX% mid mid-single and over of margins and finally, new of culture. an Management the touch digit So organic I'll array And excitement four, with product range. exciting specialty Risk segment nice posting our RIMS, our our the quarter, after some pipeline offerings, in momentum on in a mergers differentiator.

Institute ago, year was Companies Gallagher World's in of weeks the one few for by recognized Ethical Ethisphere a the row. Most Just the as seventh a

the level years to to be of the one in award is row XXX and that all prestigious professionals themselves are advice is sole highest companies testament a and across Gallagher a a dedicate who our grounded this key globally teamwork, sales we of service in receiving of XX service, expert Seven world. and around grounded outstanding honored are the the list insurance that and client articulate to culture quality XX,XXX to our in our of a and unique We ethics award. broker values only the recognized delivering culture, tenets receive professionals way, service

the turn Okay, year. Doug. terrific Doug? stop strong now and start quarter, it a to really I'll to a

Douglas K. Howell

everyone. Thanks, Pat afternoon and good

As what said, start Pat to XXXX. a terrific

revenue an Sarbanes-Oxley website. of CFO release, CFO in So Today in, We hope in with room to the for as before we reminder, time standards have today our accounting my plunge post new Also, that you the the today connection document the earnings updated numbers overarching April investor XX all I commentary documents supplement reviewing have special as your of commentary reflect as and provided helpful He folks efforts. recognition. our spend our we our implementation materials in our were models. most restated investor years on efforts. of I'll our been and role Jack's implementation Today work finance the every and the marks we call and Lazzaro. for that CFO Jack the handful is he the been with and quarterly last Jack global is of Jack four Gallagher anniversary at calls all energy clean and of Jack treasurer one these XX last your our hard IPO, A clean of decades. energy the XXth thanks our over was in he every launch held helped instrumental our was Gallagher. of let for of dedication. sincere has one about each our

Okay, some page two move takeaways page to the CFO of let's commentary, two. from

year exchange First, rate. we'll it's still a small based current on get looking from FX like tailwind this

at the third have first get the to behind but time nice have a estimate for in we that work in those we optimize did we termination years, number footprints some Second, efforts some our absolutely lease the year as have world. don't by costs. us. you'll have is team of an the later we this We integration And additional really squarely see around might cost This no also, time.

get to Corporate to segment. the Let's page X

We full-year restated we Recall the far our Day are yet That's March shown providing Investor not XXth remainder estimates are XXXX. pink XXth numbers. Those for in provided our new grey had that the GAAP released our now during columns. we of quarterly estimates numbers as only columns. the right March

are three. the on Here page takeaways

to bottom First, the at box compare March page. XXth estimates the the on grey box full pink of the full year the

the not dramatically M&A our changed estimates of change three real lines. lines. for clean You'll energy, on see There's five the or no have corporate full that year

for expense you'll June. U.S. X third As for line debt for that a you'll have offering called And updated estimate interest our finally, interest plan in read quarter. expense we the the and close to of late footnote the impact we Accordingly, in line, fourth reform. see tax the

tax technical well in tweaks some the more did the legislation, corrections estimates digest consider will of December have and over fully XXXX, As as effects. we as we interpretations refining amendments. be XXXX understanding We the we could as future XXst, Accordingly, our new lawmakers course first here quarter.

or pay. This likely million March energy is benefit, their carry-forward, taxes in at AMT book they will these clean a and we fact. The important have about of book is tax we that impact items most expense credit regardless not takeaway cash our because $XXX XXst

many be years not will come. any U.S. paying of for to we income tax federal So much

So it's expense, not a this really quarter, small use but cash. a book of

$XXX in end talking flows we are another sheet. than around quarter. net and on offering of stronger year had first our the $XXX June, million rest traditionally We'll we're also the of of million at While in cash our our the from debt balance cash about cash for March, the get available

year. as of should comments forward. your cash we M&A this So going plenty other models for have you build Few

up quarter segment growth. the organic points XX in Brokerage were and the adjusted First, margins X.X% basis first

won't in expansion probably below said the already I past if X%. is As organic margin have

in organic margin expansion second, between; probably X% margins Management You should see margins. is and adjusted Risk flattish over if some

have claim things. we are XX.X%, million. have that from pay They We make-whole get in see we $X.X nearly the $XX posted to but footnotes often, don't happen perfect. but very that us it costs a time, would that settlement annually a hate earnings small You'll of about we the about time don't release exactly claims these really in we billion on

of range the targeting still mid-XX% forward, the the rest Looking we're year. in for margins

great those a it's my clearly So are start year. to the comments,

segment rest about solid have organic Pat. of Looking ahead merger our pipeline we XXXX can to deal margin Brokerage unstoppable Back extremely an culture. strong at Risk in tuck-in on opportunities you, an beyond. that XXX our active I'm excited combined with hear cash expansion, the X.X% and a you together and growth Clearly, it position and Management was list,

J. Patrick Gallagher, Jr.

open some Thanks, answers. hopefully now it Omer, and questions Doug. let's up for

Operator

your with proceed Our Wells first question. Elyse comes question Please from Greenspan, Fargo.

Elyse B. Greenspan

level, My evening. when quarter. question, sure Good organic guidance quarter had it X% post could what like I remember so the Brokerage. X.X%, that the seems rec? rev maybe level your not might still change QX in quarter in I'm meeting pretty a change or you know strong conservatism, March Hi. just about the a kind Doug, QX line seasonally that first which you you're in be revenue and seasonally so embedding is about but adopted with of recognition, it will weaker it full of you year growth weaker said is be a

J. Patrick Gallagher, Jr.

that. things on Three

will the first that with seasonality in that years a won't quarter first see in past. us to kind new But out. the GAAP quarter, weighted figure think or lower we a probably that that probably of it I a year had two heavy As take we such

think, of we're I see know, a you a XXXX, what growth think, terms lot a bit little full seeing, exposure XXXX, for we'll the little that I tailwinds that a guidance tailwind that better. growing, forward, In going like but our year rate

at So in to maybe will upper mid in this added if that the this point. be Xs, we're Xs, we're interpret

Elyse B. Greenspan

improvement margin benefits of if Okay. you employee year in quarters? XX know so there, the the to in somehow the margin, kind quarter, level, line of of would in of more rest so the quarter or expansion nothing first the terms points margin of improvement of first in organic the other QX quarter the was shifting would for you impact then expect the call meaning you And basis same the with compared about level just to one-off that margin that's

J. Patrick Gallagher, Jr.

something the Yes, couple XX first by like fueled a there. Okay, you points, maybe be may quarter, know, benefit bit but little a maybe strong employee basis that. questions

mid-year typically get of in expansion expand into expansion that think of or first year. don't the as Looking happens much above whatever, X%, to forward, see that year. And margin some I we quite that we if last of in half the there's most margin continue the year, margins there. raises the see But then the second opportunities our half in we of the for half

Elyse B. Greenspan

so strong you year. debt to Okay. you And some question, then adding and the pointed are one last cash guys this position

where get the to on hand see share pipeline could So remainder becomes yeah up this I the during you that deals use know when you just the think will the don't a in guess is cash available list or If the your the that it point I that question the of in all moves maybe do using past. repurchase materialize of think you cash higher recent have, mean that that's year? you I will is been something that proceeds I asked include offering. would strong this on which

J. Patrick Gallagher, Jr.

event for the strong. strong end is of do that year, we our have The the stock, pipeline In pipeline right but pretty the excess would cash is we now. that repurchase

Elyse B. Greenspan

Thank very much. Okay. you

J. Patrick Gallagher, Jr.

Elyse. you, Thank

Douglas K. Howell

Elyse. Thanks,

Operator

Mark SunTrust. Our next Please proceed your question comes from Hughes, question. with

Mark Douglas Hughes

you. thank Yeah,

On said $XXX what's strength million remembering think the it or in I is last on? $XXX right, pipeline underlying million. uptick that so, quarter, just a question, is going I if usually seasonal about that there you and Am was my

J. Patrick Gallagher, Jr.

out over talking place, wobbles It constantly all the people. We're Mark. to

Some it seven the the real just six, rises you take so close, – in months, get off coming it. with people on There's it to to can are falls and XX list. that and years no magic done others

Mark Douglas Hughes

the... is It

Douglas K. Howell

get in by usually slower year-end. because be to something push there's a done to tend quarter Closings first little a the

we've closed the last quarters in more year the in historically of first. than three So deals the

Mark Douglas Hughes

the And is regardless pipeline? is of in it reflection increased the strength your a raise, debt have seeing the Would you you that done optimism? weren't if

J. Patrick Gallagher, Jr.

think in I the confidence our pipeline. it's

Mark Douglas Hughes

bit And a last contingents a we on nice a were – should How think then, those this quarter the go-forward and little quarter. were you then lift about down basis? had

J. Patrick Gallagher, Jr.

Yeah.

$X add at listen, we that think would terribly more into If and $XX about up supplementals – million, quarter read growing had too together, that compared next million I X.X%. have $X.X contingents I would we we're if X.X%. right range. grow that around to think But, year, X%. in at this about have they're little last would $XX been same much you have million wouldn't somewhere point. another we Maybe about or million, I they'll a

wouldn't So too overthink it I much.

Mark Douglas Hughes

you. Thank

J. Patrick Gallagher, Jr.

Mark. Thanks,

Operator

with Peters question Raymond next Our at Greg comes question. from proceed James. Please your

Charles Gregory Peters

Thanks Good for the call. afternoon.

J. Patrick Gallagher, Jr.

Good afternoon.

Charles Gregory Peters

A couple questions.

back your want to comments. opening don't of Doug, parse to First all, I words here.

fact the about seemed organic out bit talked margins X% of expand bogey expand but you to you now expect little a sudden, a improvement threw beyond less you not point can in It really because or You the X%, that XX-basis changed in margins organic X%. margins all growth. X% the though X% language that and can't this and below like

just I misheard maybe that. can So it clarify you or

Douglas K. Howell

No.

now the business have that where way our in don't will I growth. right range to are we're heard we in but that – times we opportunities you've think I as positioned, reinvest – areas it margins think, said the fuel before, certain I a in couple we have look

of do, at it so in you'll natural X% X%, feel you had that's we've we wage but up to kind a look bit, next that – couple one so or have where now. is if flat. had it I in the bit X% but in one happens for right range, where growth flat I at was And probably saying at probably little are. it quarter cost five sustained pretty were words the some to X% inflation, to also a probably three might just might of where to a four quarter But tough times ago, or up flattish, years I in think growth see X% we be the little that's so Over inflation, between, about, kind just compared X.X% last years, why Obviously, we happens. probably change chat we be organic naturally margins,

Charles Gregory Peters

pipeline. there. pretty clarification. a wanted out then Thanks the seems for to be you're outlook go laying positive back to I like Perfect. It just to And really the

And hear competition so we such to and we every hear just for about about we the intense turn marketplace, talk and private equity involvement. around in others M&A, time,

And wondering price your competition there between then gap the so I'm for I'm on XXXX? M&A. pipeline, maybe deductibility intense drive helping if you're more what M&A around outlook to with in And positive to ties or trying tax reform bridge and in for are growing it variables the interest

J. Patrick Gallagher, Jr.

This a Pat. things. Greg. is Primarily couple

First developed of none. are second capabilities all, the to that we've

business, look that's a the want you about if are been at you've it's what your something excited you that, the If go so if they small But expanding had cash going to if sell, or are And can't to you insurance. direction talking you've like university private numbers something that you into equity you their love great. love roll-up in, in this a to a you're business, town, the start and really about and are. firm walk

candy then, to hypersensitive secondly are land of in that that world. do visit, a store for that. in place going these and want private I a turns can't the door. people like you do of time You're not that is all accounts. come anywhere an get those on going not any first can't we to size a There's account use the a into world am their show the of I the who you culture. when planet on. feels that them them many to folks, in of buy do there's people equity The to right analogy the and past you ton people types They We and now And

not and boatload different pipeline close when and them to today with resonates a they'll saying, So all, going and by out. not we them sell we're them way money, competing will that on but here asking sitting grow with I'm of and up story we we're story this to a their earn people, we're don't the win them help give make all

So us. buy things it's is who not we're two But, into like not those the people join the fact tend to competitive.

Charles Gregory Peters

boxes color. Corporate And for forgot get I one the final – at boxes we lowered look you. as numbers that you've $XX.X to It of for the in year. commentary grey loss for is relates pink Thanks when something the Doug, to back looks Am to grey $X loss something else And to loss $XX.X. I or question a a segment. there CFO interest there it your of I bottom of the to Is the a or all of range expense a of from that there? like full gain missing $XX there? the or

Douglas K. Howell

Yeah.

If clean we out additional you five will hasn't expense reform. debt $X at look have at hasn't hardly lines, Corporate of that Those on and tax interest new of five impact all. moved It's have all. those two the shifted. the all. hasn't moved at then are million at the the that the M&A energy get moved we lines

Charles Gregory Peters

Thanks the color. for Perfect.

Douglas K. Howell

Sure.

J. Patrick Gallagher, Jr.

Thanks.

Operator

from with comes Pan, question next your Please Stanley. Our question. Kai Morgan proceed

Kai Pan

and you afternoon. good Thank

both just on I growth, to the organic – my want revenue So margin. well follow-up growth as as

front, about point X and this tailwind point last about probably X year On headwind. of the like mentioned organic year Pat, you of

are higher would is than be about why XXXX? X So the delta XXXX so much points X points, or

J. Patrick Gallagher, Jr.

historically to up Well, I'm I of dropping real these no short lets helpful, and And under and When of stock quote of me short someone flat. can Kai, in out are where you're has sell it's a It's old this. not point XX%, that market a come down, just think a you. right a lob prices capabilities the When it kills just from what point table the capabilities. and a that's first is XX%, on go does know I'm in marketplace it you really hurtful. us I that all, at

– side get things market head frankly so saw So on to for do one never flat. and perfect point this that's the that whacked me, people our coming. the for organic a not you up, is of growth, a one a by But point quote down, our be darn we outselling, have well to that

Douglas K. Howell

were about XX we were, what I think up from that points That's We didn't probably that. we're seeing right and much have or – now. lift technically up probably basis a flat. year ago, comments then pressure our really we're

X%, So it's it's year. really down the X% not

Kai Pan

specifically wonder think some saw some in in in you're that Thanks. there, were Great. or I probably We compete I challenging you X%. we're the you just have peers the just doing in then, some different And markets of UK, those. of up your the different what differently in UK. actually markets?

Our really, market. especially actually just It's specialty soft operation a growing of really including London an done just been Alesco, job operation, outstanding has in our delivered. quite brand, through have remarkable,

been they've very that it's strong. So

of Our great retail quarter. are across the had together UK sort operations flattish, they but a

Kai Pan

just trail want Okay. to Then margin on more. the a down front, little so bit

so said like wanted a like in more margin to or to And have order you X% expansion. grow you

the typically, do to X% If you investment will think much as need grow X% of range, in pressure wage you see well to say, how inflation do wonder wage you more think I just business? additional you

J. Patrick Gallagher, Jr.

All and Wage of – we is outlet that our of right. an questions It's we Excellence. for there pressure with Centers also though couple Offshore have then there.

have We into to lower labor location. cost ability work more move the

Zealand, Canada. helps the a So in wage see the little New that U.S., inflation Australia the in and control that UK, bit you us

other do. what not big a cost of we yeah, they terms pressures, In are portion consumable just of

in we can office We have chairs some equipment that and There's be efficiencies there. still gained debts communication. and

become more So use technology productive, the and real us place comes inflation challenges help for the the benefit more side and equation. of will cost think our the that wage our we control to in,

direct marketing growth, In They're invest over creative data are advertising seeing in opportunities to techniques. people all in that we're more. terms using organization, using and our of

us would fueling there's services well channel I call that, of channel to exercises. into organic type expense and use opportunities some growth, back So to for it

we're seeing organization. inside the that's what So

Kai Pan

it your paid you look the Last may are the acquisition, just guidance range. than what's I great. at That's if if wonder Okay. be like you I lower first comment on also there acquisitions, I on, that's IPO, if competitions there's one you you seems but will wonder, you multiple area, I growing fast can if actually personal wonder, and mentioned And quarter, broker just that for pretty market that. interested? recent line in just behind a

Douglas K. Howell

below think on Yeah, this I are we acquisitions times I seven think, quarter. our

the I fair light we forward, our for think those smaller don't mergers, X.X closer be is in probably think the it paid average that in price but of quarter. whole think I going X will operations, were next or I X% and I times up know below to

In terms of the – the recent price lines. personal personal lines the that IPO, a that of I lines, we read the come do red herring, lot I look it, on personal out

J. Patrick Gallagher, Jr.

to And more lines. we personal do want

Douglas K. Howell

Yeah.

And so us, that's interested businesses they we'd with – be those if would that, in. fit

Kai Pan

thank Well luck. you Great. good much, so Okay. and

J. Patrick Gallagher, Jr.

Kai. Thanks,

Douglas K. Howell

Kai. Thanks,

Operator

comes question next Please Shanker, question. with your Josh Deutsche Bank. proceed Our from

Joshua D. Shanker

and through what now the is past materializing can't increases They the and ago or expect Two, those months call, clients. but teammates to are as you. we down conversation our whether we have re-enter had increases we're increases To months that it and have what get hurricanes. a stable said related six rate hurricanes that this three you six associated Thank a should hurricane extent extent to I set price through said was rate your reactionary coming months market? after on with with look the you remember, we planned? you

J. Patrick Gallagher, Jr.

were think you're still at X%. think didn't to that X% XX% those not looking yes are market, burn all, exposed they've they the of first up, even more were about XX%. the over exposed a that a decade. And think when I property, as where And is mostly little hurricane-related that pre-hurricanes, cat low bit losses cat up rates non-cat than it were you probably is as where to been in exposed So are there I

that think now. do are in the I increases rate market the are selling they So justified,

little soft Some hold. of the wind vast the at see out doesn't aren't quotes XX%, see a sheets the increases return that blow, more the that I again. But to and market then anytime heal to XX% those a a balance going come Once to had chance don't originally quickly. have are came you'll down bit rates like a

Joshua D. Shanker

rate expect come increases you And do to year-over-year see XQ?

J. Patrick Gallagher, Jr.

I the do. and by that line. particular. entire across spectrum. started, And I is interesting. It's When I This markets also – inside markets hard in see of a were bunch the really soft

to market. a So is is it little bit. transportation And you comp the guess distracted driving is in go up somewhat. deserves Well particular, have down. down what, crushing Well then

markets are the as moving by should, results line. these they on based So

Joshua D. Shanker

Thanks for the Smart. color.

J. Patrick Gallagher, Jr.

Thanks, Josh.

Operator

comes question O'Neill. Please Sandler your proceed next Paul Our Newsome, with from question.

Jon Paul Newsome

and a couple pricing There's I that on that the whether or commentary, as conversation, then, if experience seeing your And of the least true don't market somewhat the true don't of Just if not, well. that's or any I month that yourself. know small of it's don't I being quick also pricing historically follow-ups and either not I about wondering month-by-month, late. competitive if if that's and little changing you're real is of sort lots and similarly and it's it's know environment. getting of And know bit better every was

J. Patrick Gallagher, Jr.

thing. the varies. here's No, It

varies. globally, network it the travel I As

of kind So everything's up. almost in Australia, of range seeing for mid-single instance, kind you're digit

close market, and London the all you we're in you come step well, it's back in been – that's States, not we're of that's But flattish for and Illinois Texas bit When across and eight still back some some think there's Then spread at to much. really when necessary. up, is the to there. is this for this getting okay, tad from to I our down, softness bottom, up, a I calls. a these years. but But it's it property's that it's is we in you impacting nice, really you cat market get than around really doing, is but tougher results on You United with about it's Rate it continue of has guys range Florida specialty think it sure. and travel in it,

and up, and that a things Now, on X% and sit you also when you them for to not down that's just with service their X% insurance. a client X% up of is for X%, account, business side, account up, meaningful the about provided the lose X% I really help can side talk an price I XX% The I'm tell think become unbelievable about destination tell not fact or grow down an casualty I'll I'd that help I'd the I'm that we've we X% X% on beyond at is them. employer now property benefit down, It's price. but the there flat. to business do the their to frankly, which lose going

So to me the environment. perfect it's kind of

Jon Paul Newsome

other one unrelated. that's question completely have I

is affect Management Risk to the a that carriers, your that's anything that the market, little in impact does trying the a seeing Management bit we're related especially business, amongst market the that you're with M&A Risk have business? of and that to the any the landscape changing in there build carriers relationships On would

J. Patrick Gallagher, Jr.

No.

helpful. in be think fact I it could

XXX been For do on Gallagher I've side the are Marsh you there, casualty really didn't out in you the Anne got business. TPA. stick property business, years, the claims of asked reason. Well, especially business? why with Why here's the TPA the hanging Bassett? like Why

$X.XX billions of and You claim. on dollars turns the premium every dollar have billions and of billions into and a year about

system, side and opportunity better our going claims, do can their fact going of claim maybe you're end-all. distinct you that can't we the gets to be-all do in I and numbers. bad cetera data, point I better it the et off of geography, and parts for for claim And their and job way that of department consolidating, an to really opportunity they're And better a to you helpful body, – looking say cetera, market. is be to a is fact that miss going believe you of to think think superior are They're put they're country, job. going want that to will willing of the This the have next a are really and to belief say our dates we're at what the and any we're that types generation our where getting not outcomes do they as driving is et someone it, of own this feel that. you're they're our do up going to because at to if not it. I if the the a their markets outsource when an do really be you fact a So The and miss that their ROE, returns there's CEO shareholders that to to and neglect I

not And bigger to so is take one see – It's into going house. consolidation to no, going I the just work the put it claim away. don't

Jon Paul Newsome

quarter. the call. Appreciate on Congrats the

J. Patrick Gallagher, Jr.

Thanks, Paul.

Operator

Soleimani Please proceed your Our from next question. KBW. question from comes Arash with

Arash Soleimani

what extent I are the on through first Thanks. side improvement you say to drive for guess opportunities cash free would there example? question capital there flow the to just management working

J. Patrick Gallagher, Jr.

consolidate bank Good this lot. working we particular at or because pretty particular, that's went five paid acquisitions, we've really larger four accounts, and been flow, improved are when mature point. a we that's the lot in question. in cash cash. U.S., free we We in did off a said a on our generated international and We've that international our cash we through of Where effort the consolidation

see X So little got generation that yet push the X/X go working on well internationally start the years ago about think I us. ways a talking big U.S. capital that, we but don't We've was pretty that behind to in I on further

Arash Soleimani

Corporate. And look of make reform shows million backed didn't like quarter. $X Thanks. wanted for just I understood mentioned adjusted out got that adjustment It I why. sure the to this tax it you up in

Douglas K. Howell

rate our there's – continued question. some in at get estimates be technical out. component there was be for (XX:XX:XX). XX/XX. a there Good put adjustment it smaller that Yeah. call since But in There's an might run if that don't some a is, we an it that's just it just where But thought it probably and we we'd as commingled done. I could it put adjustment probably corrections but component

Arash Soleimani

the Right. Perfect, answers. thanks for

Douglas K. Howell

Thanks, Arash.

Operator

Credit comes your question next with Mike proceed Our question. from Suisse. Please Zaremski,

Michael Zaremski

to on next structural advantage. to guess insurer can remind think leverage if you Hey, operating of you in you something gentlemen. there Pat, think there's very along handling that that there's think me margin how your it's how you us less generation Bassett. Gallagher share then a Paul's where them separately, think and every continues don't think And I Couple as, guess guys reasons. is assuming competitive I'm the segment question, can certain of that think regarding will It's about because thinks a quick some about market so I you claims be for follow-ups growth remind strong.

Douglas K. Howell

it business handle the Doug about side be. to what let margin talk of the I'll intensive, I to yes, opportunities – to is I'll see it's because the that the answer very but you labor

at nil, unbelievable. share claims that paying look a in if market and all Gallagher Bassett billion take year, a $XX zero it's of you out of is First it's

$X There's the globe casualty, premium when that know that's life, you'd let's better so a is you about a thing. Insurance health $X But billion it are just You've number, according to which got trillion trillion, of having in call are else. we share and number the Property XX% Information everything about Institute. including from we of any than take beautiful far I. and market

of at claims there a that to partner pays When have RIMS in Not thinking right. Bassett is and market I'll places Bassett, going CEO I I outsource. a and Bassett's Broadmoor very, to But them the We've realize around for become is opportunity world say you there. do. of my every Gallagher what as It's you part think you're than to very organized it's business. markets some some like of talk is more to our meetings start and separate Gallagher the huge segment don't So, thing is fast it the meaningful. Gallagher growing do best

new of these money have kind our do. things today systems, that my actually more some go, we than yeah, mentioned silence. and commentary household invest to we And I'll And of in in you it's are and go, products, a names they'll shocking I do no. no, the

in the better next the XX long to able outsourcing CEOs the run, I to are and do model think I a business it overlook but prove over be gets those just that's So, think will model, dominate, won't And be years, the years, stronger. do and stronger XX it think return. I not going to

Douglas K. Howell

we're deep prove, it we want our handling can inside the in to What entire is can can we're deliver we way paths remember of adjusters and pick we for where not the with verticals trying also, career we up claim organization. claim customize the it, great going we're that doing this provide expertise their delivery, they behind And into the specialists.

deep can And claim a as is a we leverage – result, geared so as provide a wise. vertical, It outcomes. it's superior not in

In Management can hit the the looking line. you're line at think XX% Risk you and to it's still hit business, coming think about the on it, a allowing XX% margin four to labor-intensive or or probably possibly It's XX% organically. bottom growth that because business, of of can if If continue. back bottom the you five I go ago, Brokerage XX% you it's business. scale us I our But our XX%. in business was years the our mean, are automation,

So there improvement has margin in been it.

Michael Zaremski

Brokerage then so, we Jain more as, longer Vishal where terms done in if versus his segment term think the is And team, of margin to more segment? about this be and there's improvement

Douglas K. Howell

sheer still on Officer Brokerage listening Brokerage to segment there. versus our say there just Chief remember differential for our is I'm opportunity by March opportunities There's you the and the size to Service talk opportunities the wouldn't group. I in us lots that Well, glad of There's too. side still but

Michael Zaremski

very Okay. much. you Thank

J. Patrick Gallagher, Jr.

Mike. Thanks,

Operator

Hughes with comes Please next question. Mark your SunTrust. Our from question proceed of

Mark Douglas Hughes

workers' in Risk inflation see Management You of comp business? the the within business, any sign

J. Patrick Gallagher, Jr.

Mark? Inflation in what,

Mark Douglas Hughes

cost? loss Just

J. Patrick Gallagher, Jr.

of part compensation I yeah. medical. huge Oh workers' mean, a is

that awful business cap to only. constantly So is you're of and large fight part an medical battle the going

add there's inflation That's important in natural inflation that's important. do it, well. important. wage techniques huge getting there's manage people back the purchase of are the managed why and there inflation why why to as It's and to there's pharmaceuticals is work that care So so how that is so – you because so that and

Douglas K. Howell

realize though that's that's Bassett's on or because Gallagher this medical provide to cost, that Bassett technically that's in that's realize, inflation we come service claim they the undying why carriers got But self-insured And they to. not that Gallagher you going costs. to you've

to knowledge, the ways to our are bend bit. what capabilities scale, our that So to leverage a curve try little our

Mark Douglas Hughes

of or sort inflection Any sign lately? acceleration of any

J. Patrick Gallagher, Jr.

No.

Douglas K. Howell

I steady. pretty No, don't it's so, think

Mark Douglas Hughes

Thank you.

Douglas K. Howell

All right.

J. Patrick Gallagher, Jr.

Thank Omer, anymore? Mark. you,

Operator

I and of turn Ladies Gallagher end remarks. to call and session, gentlemen, for closing the question-and-answer we like reached to have would back the the Pat

J. Patrick Gallagher, Jr.

we Thank you XXXX hard and for I'd continued as much. across for all great had Well, on our clients execute support. of be as to thank strategy. our another for their great today, first our heard very should we globe value personally the like quarter and work employees you their year creation a Gallagher

organically. We will grow

mergers acquisitions. through We and will grow

our us to live constantly with this Thank unique and We being work quality and you improve every promote day and will our culture. afternoon. productivity, we for

Operator

today's concludes conference. This

disconnect lines participation. your may You you for at time. Thank this your

Arthur J. Gallagher & Co. (AJG) 1 May 182018 Q1 Earnings call transcript