Arthur J. Gallagher & Co.

Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities law. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10-K, 10-Q, and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

Thank you very much. Good afternoon and thank you for joining us for our fourth quarter 24 earnings call. On the call for you today is Doug Howell, our CFO, other members of the management team, and the heads of our operating divisions. Before I get to my comments about our financial results, I'd like to acknowledge the tragic wildfires in California. Our heartfelt thoughts are with all those impacted, including our own Gallagher colleagues. Our company and industry have such an important role and responsibility, helping families, businesses, and communities rebuild and restore their lives. And like many times before, Gallagher and the industry will rise to the occasion. Okay, on to my comments regarding our financial performance. We had an excellent fourth quarter. For our combined brokerage and risk management segments, we posted 12% growth in revenue, our 16th consecutive quarter of double-digit revenue growth, 7% organic growth, reported net earnings margin of 13.5%, adjusted EBITDA growth of 17%, and adjusted EBITDA margin of 31.4%, up 145 basis points year over year. Gap earnings per share of $1.56, and adjusted earnings per share of $2.51, up 15% year over year. The December capital raise for the acquisition of Assured Partners creates some noise in these headline numbers, but I will peel back the impact in his comments. Regardless, another fantastic quarter to close out another terrific year by our team. Moving to results on a segment basis, starting with the brokerage segment. Reported revenue growth was 12%. Organic growth was 7.1%. Base commission and fees were 7.8% in line with our expectations, which got offset a bit by slightly lower contingents. Adjusted EBITDA margin expanded 168 basis points to 33.1%, which includes interest income related to funds raised for the acquisition of assured partners. Excluding that interest income, margin expansion was 109 basis points. Let me give some insights behind our brokerage segment organic. With our PC retail operations, we delivered 6% organic overall. The UK, Australia, and New Zealand were all in the high single digits. US retail organic was around 5%, and Canada was down a couple percent, impacted by lower contingents. Our global employee benefit brokerage and consulting business posted organic of about 10%, a really strong finish that includes the catch-up of the large life case sales that shifted from earlier in 24. Shifting to our reinsurance wholesale and specialty businesses, in total organic of 9%, which overcame some expected market headwinds in our global aerospace business. So very strong growth, whether retail, wholesale, or reinsurance. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance markets. Overall, the global PC insurance market continues to grow. With fourth quarter renewal premium increases, that's both rate and exposure combined, consistent with the past two quarters. Thus far in January, renewal premium increases are ticking slightly higher than fourth quarter and are above 5% driven by increases in casualty lines like umbrella and commercial auto. Breaking down fourth quarter global renewal premium changes by product line, we saw the following. Property and professional lines were about flat. Workers' comp up 1%, general liability up 4%, commercial auto up 9%, umbrella up 10%, and personal lines up 9%. So we continue to see increases across most lines and geographies. Carriers are behaving rationally and pushing for increases where it's needed to generate an acceptable underwriting profit. It's a great market for us to operate in because we can further differentiate ourselves with our leading tools, data, and expertise. Remember, our job as brokers is to help clients find the best coverage that fits their budget while mitigating price increases. We're becoming more successful securing lower pricing for our property customers, especially cat-exposed property, which enables them to buy more limit or reduce their deductibles, resulting in more coverage for the same spend. Shifting to the reinsurance market. Overall, 1-1 renewals were orderly and reflected an environment that generally favored reinsurance buyers. Growing demand for property cat cover was met with sufficient reinsurance capacity, despite 2024 being an elevated year with more than $150 billion of estimated insured natural catastrophe losses. This resulted in property price declines that were greater at the top end of reinsurance towers and similar to January 24 renewals, reinsurers continued to exercise discipline on terms and did not revert to attachment points that exposed them to greater frequency. Reinsurance buyers of specialty coverages saw modest price declines across many lines of coverage, but again, no softening in terms and conditions. Shifting to casualty, while there was adequate reinsurance capacity, reinsurers remained cautious on US casualty risks due to elevated loss cost trends and potential reserve deficiencies. Looking forward, wildfire losses and casualty reserve increases seem to beat the stories here in January, and time will tell how each of these ultimately impacts the market. Regardless, Gallaghery had a fantastic 1-1 with some nice new business wins and should continue to excel in this environment. We'll read you some comments on our customers' business activity. During the fourth quarter, our daily revenue indications from audits, endorsements, and cancellations remained in net positive territory. The same is true for full year 2024. While the activity is not quite as high as 23, the upward revenue adjustments this past year are very close to full year 22. So we continue to see solid client business activity and no signs of a meaningful global economic slowdown. Within the U.S., the labor market remains strong. Since April 24, the number of open jobs has remained relatively steady and at a level that is still well above the number of unemployed people looking for work. Employers are looking for ways to grow their workforce and control their benefit costs, and at the same time face wage increases and continued medical cost inflation. Both are headwinds that our professionals are helping to navigate. Regardless of market conditions, I believe we are well positioned to take share across our brokerage business. Remember, 90% of the time we are competing against the smaller local broker that cannot match our niche expertise, outstanding service, or extensive data and analytics offerings. So with some nice momentum in net new business production across our brokerage business, a PC market still seeing mid single digit premium growth and a strong US labor market, we continue to see full year 25 brokerage segment organic the six to eight percent range moving on to our risk management segment Gallagher Bassett revenue growth was nine percent including organic of six heading into 25 we should continue to benefit from excellent client retention increases in our customers business activity and rising claim counts adjusted EBITDA margin was twenty point six percent in line with our October expectations looking ahead We still see full year 25 organic in that 6% to 8% range, and margins around 20.5%. Shifting to mergers and acquisitions. During the fourth quarter, we completed 20 new tuck-in mergers at fair prices, representing around $200 million of estimated annualized revenue, bringing the full year to $387 million. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. And of course, the big news in December was signing an agreement to acquire Assured Partners with $2.9 billion of annual pro forma revenue. It's a compelling opportunity to build upon our commercial middle market focus, deepen our niche practice groups, and further leverage our data and analytics, allowing us to provide even more value to clients. It should also expand our tuck-in M&A reach and create more retail and specialty revenue opportunities across Gallagher. What is especially exciting is that the combination involves two highly innovative, entrepreneurial, and sales-based cultures. Although we will continue to operate as two independent companies until close, we have started discussions and are very impressed with the talent, professionalism, and excitement of the assured colleagues. We anticipate we will receive necessary approvals and complete the acquisition sometime here in the first quarter. In addition to the pending assured partners acquisition, we have about 45 term sheets signed or being prepared, representing around $650 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. With a strong close to the year, let me reflect on our full year financial performance for brokerage and risk management combined. 15% growth in revenue, 7.6% organic growth, 18% growth in adjusted EBITDA, 48 mergers completed with nearly $400 million in estimated annualized revenue, and we signed a definitive agreement to acquire assured partners. These are terrific metrics. And as proud as I am of the excellent financial performance this year, I'm more proud of the way our culture has stayed true as we continue to expand. Our culture is about our colleagues, guided by the Gallagher Way and the rock-solid foundation they form based on every interaction we have, whether it's clients, carriers, future merger partners, or with our Gallagher colleagues around the globe. Frankly, our culture is unstoppable, and that is the Gallagher Way. Okay, I'll stop now and turn it over to Doug.

Doug? Thanks, Pat, and hello, everyone. Today, I'll quickly recap some sound bites from our quarter and replay our early thoughts on 2025, most of which Pat just touched on, then use the rest of my time to unpack the impact of the Assured Partners financing activities on our results during the quarter. Then I'll wrap up my prepared remarks with my usual comments on cash, M&A, and capital management. Okay, highlights from our fourth quarter that you'll see in our earnings report. Tom Frantz, terrific base Commission and fee organic growth of 7.8% solid supplemental growth of 4.7% and while contingents went backwards a bit this quarter we don't see that as a trend by any means. Tom Frantz, As I looked at 2025 brokerage organic pat relayed that we're in a favorable environment with rates still needing to increase to cover higher loss costs trillions of dope global premiums growing and inflating. and our sales and service offerings outpacing our competitors, which should increase both new business and our retentions. So as we sit here today, we still believe our full year 25 brokerage segment organic growth should be in that 6% to 8% range. That's unchanged from what we said in October. As for brokerage margins, a little noise on page 5 of the earnings release. Please see the footnote. you'll read that the margin was aided by about $20 million of interest income earned on cash we're holding to close Assured Partners. Adjusting for that, our margins would have been 32.5%, up 109 basis points over last year. That's nicely above our October expectation of margin expansion in the 90 to 100 basis point range. Looking ahead to 25, we are still viewing margin expansion like we have, like we've said many times before. we see margin expansion starting around full year organic growth of 4%. At 6%, maybe we could see 50 basis points, and at 8%, perhaps 100 basis points of expansion. Of course, those ranges can then be impacted by changes to interest income on our fiduciary assets and then the roll-in impact of M&A. By our March IR day, maybe we'll have a better read on where interest rates might go and also the impact of Assured rolling into our numbers. But at this time, we don't see either having a significant impact on those ranges. So really no change to how we're thinking about margins in 2025. As for risk management, another solid quarter posting 6% organic. Admittedly, a couple million dollars below our October expectations, all stemming from a smaller quarter of construction consulting revenues in the Northeast that can be just a little bit lumpy. So adjusted margin expansion of 20.6% in the quarter was also in line with our October expectations. And then looking forward, we're seeing full year 25 organic also in that 6% to 8% range, with margins again around 20.5% for the year. So a great quarter and full year by both our brokerage and risk management teams, and both have a strong outlook for 25. Turning to page six of the earnings release and the corporate segment shortcut table. For the interest in banking line, we are a bit better than our October forecast because we just were not into our line as much as we thought at that time. For the adjusted acquisition lines for M&A and clean energy, both were close to our October expectations. Then when you look at the corporate line of the corporate segment, that was better than our expectation due to unrealized non-cash foreign exchange remeasurement income, which was partially offset by a return to actual tax catch up of about $4 million. So let's move from our earnings release to the CFO commentary document that we post on our IR website. First, an overarching statement. Please take some time to read any headers or footnotes throughout this document to understand what information has or hasn't been updated for the Assured Partners deal. So let's move to page three for our modeling helpers. Across the board, fourth quarter 24 actual numbers were fairly close to what we provided back in October. As for 25, we provided a first look of what we forecast. Again, none of these numbers include any impact from Assured Partners. Turning to page four, a first look at our corporate segment outlook for full year 25. The only impact of Assured is found in the interest and banking line. It includes additional interest expense from the $5 billion debt raise Looking at page five of the CFO commentary document to our tax credit carry forwards. As of year end, about $770 million that will be used over the next few years. So still a nice sweetener to fund future M&A. We would not expect those numbers to move much because of the assured financing nor the role in assured taxable income. That's because of the interest shield and also the amortization of the $5 billion deferred tax asset that we'll get with Assured Partners that should save us about $1.4 billion of taxes over the coming years. Looping over to page six, the investment income table. This table includes an assumption of two 25 basis point rate cuts in 25. It includes interest income from cash we're holding to pay for Assured, assuming a late March close. but it does not include interest income from Assured's fiduciary assets after closing. When you shift down on page six to the rollover revenue table, the pinkish columns to the right include estimated revenues for brokerage M&A that we closed through yesterday. Then below that table, we've added a separate section for Assured Partners revenues, again assuming a late March close, which of course is highly dependent on regulatory approvals. Then, just a reminder, you also need to make a pick for other future M&A. And then further down on that page, you'll see the risk management segment rollover revenues for 25 are expected to be approximately $5 million for each of the first two quarters. All right, moving to page seven. This is a new page to help you see the impact of the Assured Partners financing on our fourth quarter 24 revenues, EBITDA, net earnings, and EPS by segment. The three items just to keep in mind. There was additional incremental interest income on the cash that we were holding to fund the acquisition. There was additional interest expense we incurred on the newly issued $5 billion worth of debt. And then the additional shares outstanding from the December equity offering. You'll see that for fourth quarter, it all nets out to nearly nothing, but it does cause a little noise in our numbers. Also, the call-out box on the right of that page provides some information on shares outstanding because of the Assured Partners equity rates for our first quarter. This includes the full impact of the shares we issued in December and the exercise of the green shoe in early January. Finally, if you flip to page eight, you'll see that this page is just a repeat of what we provided in the December Assured presentation for ease of reference. There's no new news on this page. Finally, let's move to cash, capital management, and M&A funding. Available cash on hand at December 31st was more than $14 billion, of which approximately $13.5 billion will be used to fund Assured Partners. Since year end, we received another $1.3 billion as the underwriters exercised the green shoe. So considering this and our strong expected free cash flow, we are in an excellent position to fund our M&A pipeline of opportunities. Here in 25, it's looking like we could have $3.5 billion to fund future M&A. Then it jumps up to nearly $5 billion in 26, all while maintaining a solid investment grade rating. So an excellent quarter and an excellent year to have in the books. As I reflect on 24, I have to say that we had a pretty terrific year. For the combined brokerage and risk management segments, we posted adjusted revenue growth of 14%, organic of 7.6%. overall margin expansion of 94 basis points, and most importantly, we grew our EBIT at 18%. Those are terrific numbers and reflect what Pat said. That's our unstoppable culture. So those are my comments. Back to you, Pat.