Arthur J. Gallagher & Co.

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 meanings of the securities laws. 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 factor 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 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 and Company. Mr. Gallagher, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us for our third quarter 25 earnings call. On the call with me today is Doug Howell, our CFO, as well as members of the management team. Before I start, I'd like to acknowledge the damage caused by Hurricane Melissa in the Caribbean. Our thoughts are with all those impacted, including our own Gallagher colleagues. Our team of experts have been mobilized and are on the ground helping our clients and colleagues. Moving to our financial performance, we had a terrific and obviously very active third quarter. Our two-pronged revenue growth strategy, that's organic and M&A, delivered revenue growth of 20%. In fact, over the last 30 quarters, We've delivered double-digit top-line growth 26 times. This is now our 19th straight quarter of double-digit growth. Clearly, a relentless, client-centric, team-driven, and welcoming culture is thriving. Underlying that headline revenue growth, we posted 4.8% organic, grew adjusted EBITDA at 22%, and expanded adjusted EBITDA margins by 26 basis points. demonstrating we are getting substantial benefits of scale and the value delivered by our strategy of constantly focusing on improving our productivity while delivering our high quality services. EPS for our combined brokerage and risk management segments, we posted gap EPS of $1.76 and adjusted EPS of $2.87. That would have been 22 cents higher had we levelized for the intra-quarter revenue seasonality related to Assured Partners that we closed on August 18th. Doug will unpack this timing aberration in his comments. The punchline is our business continues to shine, and the early days of the Assured Partners folks coming together with the Gallagher team is off to a terrific start. Already, we're selling together. We're showing that we are better by being together. Robert Marlayson, Moving to the results on a segment basis, starting with the brokerage segment reported revenue growth was 22% organic growth was 4.5%. Robert Marlayson, Relative to our September IR day commentary, we did see a little pressure on contingents and a few large life insurance cases shifted out of the third quarter. Robert Marlayson, Adjusted EBITDA margin headline shows flat year over year at 33.5%, but when we exclude merger and acquisition interest income. It shows underlying margin expansion of 60 basis points. Doug will give you a bridge from last year. That's terrific work by the team to stay vigilant in our relentless pursuit of being more productive every single day. Let me provide you with some highlights behind our brokerage segment organic. Within our retail operations, we delivered 5% organic overall within PC, with U.S. up more than 7%. international flat driven by less renewal premium increases and lower contingents. Employee benefits posted around 1% organic, driven by lower than expected large life cases. Shifting to our wholesale and specialty businesses, in total we delivered organic of 5%, with the US outperforming our international businesses slightly. As for reinsurance, it's a relatively small quarter, and organic here was in the high single digits. And while not in our organic growth numbers, AP's third quarter organic was 5%. That really shows you that a terrific sales-driven culture is joining our team. So we continue to deliver organic growth across retail, wholesale, and reinsurance. Let me provide some thoughts on the PC insurance pricing environment. Overall, global insurance renewal premium changes remain in positive territory, and we continue to see more carrier competition across property classes particularly shared and layered programs, and CAD-exposed risks, resulting in renewal premium decreases. With that said, carriers continue to push for increases across most casualty classes, which are more than offsetting the property decreases. Let me provide a further breakdown on our third quarter global insurance renewal premium changes, which includes both rate and exposure by line of business. Property, down 5%. Casualty lines up 6% overall, including general liability of 4%, commercial auto up 5%, and umbrella up 8%. U.S. casualty lines are up 8%, and that increase has been consistent over the past 12 quarters, suggesting domestic carriers are recognizing continued pressure. Package up 5%, D&O down 2%, we think perhaps close to bottoming out, Workers count up a point, and personal lines up 6%. So while property is down 5%, many lines are still seeing increases. In fact, global renewal premium change excluding property remains around 4%, with good accounts getting some premium relief and accounts with poor loss experience seeing greater increases. Looking at differences in renewal premium changes by client size, we continue to see some bifurcation. For middle market and smaller clients generating less than $250,000 of revenue, renewal premiums were up about 3%. For larger clients generating more than $250,000 of revenue, renewal premiums were down 1%. So many of the market trends we have been highlighting for the past few quarters persist today. As for the reinsurance market, a very small quarter for us. Looking towards January 1, renewals The industry remains healthy, there's adequate capacity to meet expected demand, property coverages continue to favor reinsurance buyers, while casualty reinsurance dynamics are more stable with continued caution for U.S. risks. Moving to employee benefits, we continue to see solid demand for talent retention strategies given the resilient U.S. labor market. Further, managing rising health insurance costs is becoming increasingly important for our clients, as they deal with continued medical cost inflation. So we are engaging with employers to help them alleviate the pressure from rising medical and pharmaceutical costs. Moving to some comments on our customers' business activity. While the U.S. government shutdown has halted economic data releases, our proprietary data, which has been an excellent indicator of the economy, continues to show solid client business activity. Third quarter revenue indications from audits, endorsements, and cancellations remain nicely positive. Interesting, through the first three weeks of October, our revenue indications are showing even more positive endorsements and lower cancellations than in September. So, while we are watching our customers' business activity carefully, we are just not seeing signs of an economic downturn. Regardless of market and economic conditions, I believe we are very well positioned to grow. From our leading net ditch experts, vast proprietary data, award-winning analytics platform, extensive product offerings, outstanding service, and global resources, this puts us in an enviable spot competitively. As we sit today, we are seeing brokerage segment fourth quarter organic of around 5%, which would bring our full-year organic to more than 6%. Moving on to our risk management segment, Gallagher Bassett. Third quarter revenue growth was 8%, including organic of 6.7. We saw strong new business revenue and excellent client retention in the third quarter and believe these favorable dynamics will continue through the end of the year. Accordingly, we expect about 7% organic growth in the fourth quarter. Third quarter adjusted EBITDA margins 21.8%, a bit better than our September expectations. Looking ahead, we see fourth quarter and full year margins around 21%, and that would be another great year for Gallagher Bass. Let's shift to mergers and acquisitions, starting with some comments on assured partners. Since the mid-August close, dozens of Gallagher leaders and hundreds of others have been traveling to AP offices and hosting gatherings. We've been sharing our stories with thousands of our new colleagues and highlighting all the tools and expertise that is now at their fingertips. I, too, have attended many of these meetings and events. And I have to tell you, the level of excitement all of us have witnessed during these visits is literally palpable. We have shared a view that we will be better together, one plus one will be greater than two, and there is immense value creation for our clients, carrier partners, and shareholders. Equally important, they know they are now home and they are getting the resources they have desperately needed for years. For those that are ready to join the amazing Gallagher culture, I welcome you. Outside of AP, we completed five new mergers representing around $40 million of estimated annualized revenue. This brings our year-to-date estimated annualized acquired revenue to more than $3.4 billion, or 30% of full year 24 revenue. That is fantastic. And for those new partners joining us, I'd like to extend a very warm welcome. Looking at our pipeline, we have about 35 term sheets signed or being prepared, representing around $400 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. I'll conclude my prepared remarks with some comments about our bedrock Gallagher culture. As I am meeting with colleagues both new and old across our global network, it's always impressive to me how quickly new employees and acquisition partners come together as part of the Gallagher family of professionals, how we embrace the Gallagher way and enhance our offerings and services to clients. As tenant number 24 of the Gallagher way reminds us, we must continue to building a professional company together as a team. And I believe this spirit of teamwork and shared purpose is precisely what is driving our success today. That is the Gallagher way. Okay, I'll stop now and turn it over to Doug.

Doug? Thanks, Pat, and hello, everyone. Today, let me first address the third quarter impact from rolling in revenues from Assured Partners. So let's go to page seven of the CFO commentary document that we provide on our website. Over the last 30 days, we finally got usable AP data down to the customer level detail. That gave us the policy inception data necessary to implement our 606 accounting and harmonized revenue accounting methods. First, it's important to note that the new detail did not change our annual view of revenue or EBITDA. Second, however, it did reveal that AP's business is much more seasonally skewed than we could previously estimate. Two tables here on page seven help unpack this. The top table shows you the inter-quarter seasonality. It's easy to see first and fourth quarters have considerable seasonality, which you should consider when building your models. What this table doesn't show is the intra-quarter seasonality. So we've added the lower table. What this shows, while we owned AP for half the quarter, only about 40% of the policy inception dates were between August 18 and September 30. That produces an $80 million revenue difference to our September IR Day estimate, where we used a 50% assumption because, well, we owned it for half of the third quarter. That causes a $0.22 shortfall to our indicated September IR Day estimate. You'll see that in the yellow column in that table. It does impact some of my other commentary, but I'll highlight those throughout my remarks. All right, with that said, let's go back to the earnings release. Let's go to page three. Brokerage segment organic growth of 4.5%. That's about $11 million of less revenues than our September IR date thinking. Half of that relates to those lumpy life sales that didn't get closed. And we've talked about that, how that can impact organic a little bit from time to time. That cost us about 30 basis points of growth. The other half or so relates to contingents. While there is some geography with supplementals, We did have an unfavorable estimate change related to one of our international programs. That cost us about 20 basis points of growth relative to our expectations. Looking forward to the fourth quarter, we see organic around 5%. A couple items that influence our thinking when we make that estimate. First, as we discussed in our IR day, we are in the midst of our annual update on 606 estimates. When all that settles, that could move that growth estimate a half a point either way. We know that's just accounting, but it can cause some noise. Second, always a little sensitive to the timing of those large live sales. If buyers believe rates may come down even more, they might push those into 26. That said, if we were to deliver fourth quarter organic around 5%, we would finish the year with organic above 6%. That would be a terrific year. Flipping to page five of the earnings release to the brokerage segment adjusted EBITDA table. Third quarter adjusted EBITDA margin was 33.5%. That's flat year over year on the headline. But as I do each quarter, let me walk you through a bridge from last year. First, if you pull out last year's 2024 third quarter earnings release, you'd see we reported back then adjusted EBITDA margin of 33.6%. Now, adjusting that using current FX rate, and this quarter is about 10 basis points. So FX adjusted EBITDA margin for third quarter 24% is about 33.5%. From that starting point, the roll-in impact of M&A used about 200 basis points, with more than two-thirds of that impact coming from the seasonality of Assured Partners. Interest income, including the cash we were holding for the AP closing through mid-August, added about 140 basis points of margin. And most important, organic growth of 4.5% gave us about 60 basis points of margin expansion this quarter. This bridge helps you quickly see we continue to deliver terrific underlying margin expansion. As for fourth quarter, we don't see anything that causes us to change how we view underlying margin expansion potential. We still see terrific opportunities. Sticking on page five, the risk management segment organic growth was 6.7%. That was in line with our expectations, and that resulted due to strong new business revenues and excellent retention. We expect favorable new business and retention again in the fourth quarter, so it's looking like another quarter of organic growth in the 6.5% to 7% range. Adjusted EBITDA margin of 21.8% was better than our September IRD expectations, and looking forward, we still see full year margins closer to 21%. Let's turn now to page seven of the earnings release and the corporate segment shortcut table. Each of these adjusted lines came in close to the midpoint or just a bit better than our September IR day expectations. All right, let's leave the earnings release and go back to the CFO commentary document. Starting on page three with our modeling helpers, most of the third quarter 25 actual numbers which were given excluding AP were close to what we provided back in September. Looking forward, we are including assured partners in our fourth quarter figures for depreciation, amortization, and earn out payable. Also, please always take a few minutes to look at the impact of FX as you refine your models. Turning to page four in the corporate segment outlook for the fourth quarter 2025, not much change here from our IR day six weeks ago. Flipping now to page five to our tax credit carry forwards. Again, not much change. from our IR date, but as a reminder, it's a nice cash flow sweetener to fund future M&A that doesn't show up in our P&L, but rather via our cash flow statement. Turning to page six, the investment income table, we've updated our forecast to reflect current FX rates and changes in fiduciary cash balances. These numbers assume one future 25 basis point rate cut in December. Shifting down to page 6 to the rollover revenue table, the third quarter 25 column subtotal is around $137 million before divestitures. That's pretty close to our September estimate. Looking forward, the pinkish columns to the right include estimated 25 and 26 revenues for brokerage M&A closed through yesterday, excluding assured partners. And just a reminder, you always need to make a pick for future M&A. Moving down the page, you'll see that we expect fourth quarter 25 risk management segment rollover revenues of about $16 million. All right, flipping next to page seven, I hit on the major takeaways up front in my comments, but heads up on a couple of items as you use this page to build your models. First, take a hard read through the footnotes. This table shows our midpoint estimates. It uses a placeholder assumption for growth and also does not include synergies. We still see annualized run rate synergies of $160 million by the end of 26 and $260 to $280 million by early 28. And the second point, the non-cash items that we show here, mostly depreciation and earn-out payable, are also reflected in the brokerage segment fourth quarter estimates on page three. So please don't double count those. Moving to cash, capital management, and M&A fundings. When I look at available cash on hand, plus future free cash flows, plus investment grade borrowings, over the next couple years, it's looking like we might have $10 billion to fund M&A before using any stock, still at multiples with a terrific arbitrage. So before we go to Q&A, a few sound bites on our nine-month combined brokerage and risk management adjusted results. Revenue up 17%, net earnings up 27%, EBITDA up 25%, organic year-to-date at 6.6%, and EBITDA margin over 36%. Those are stellar results, and I see us finishing 25 strong, and 26 is looking like another terrific year. Okay, back to you, Pat. Thank you, Doug.

Operator, if we could go to questions, please.

Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Elise Greenspan with Wells Fargo. Please proceed.

Hi, thanks. Good evening. My first question, I want to start on Assured Partners. When we're thinking about, well, I guess new business by AP, I'm assuming that that's in the M&A line, but then what about synergies? Does that fall on the M&A line or is that something when they start coming online that will be included within organic revenue growth?

Well, the revenue synergies that we get from that goes into the assured P&Ls will be given credit to them, not to us. If there is something that we would book, for instance, a broader base contingent commission or supplemental, that if that impacts our books, that would go into the legacy Gallagher organic growth. So to a certain extent, if we pick up some more on the Assured Partners Book of Business, that would understate organic revenues. Does that help?

Yeah, that does help. And then I guess, I mean, I think, you know, in the past, you guys have said that next year, right, feels a lot like this year. You just said, right, the full year is going to be, I think, just more than 6%. Based on how you guys are seeing everything today, is there more precise guidance just in terms of the organic outlook that you're looking at for 2026?

Yeah, we're in the middle of our budget and planning process, but I still think we feel comfortable that next year, the 26 could look a lot like 25. We still believe that. Early indications that we're having terrific success in our reinsurance business. We're having terrific success in our P&C businesses, too. As a matter of fact, when you really pull back the organic growth in the P&C business, it's been pretty consistent over the last five to seven quarters when you strip out property cap. So basically, our business are still running very similar today as what we were seeing throughout the year. So that's what makes us feel comfortable that next year could be a lot like this year.

And then my last one is on M&A. When you guys talk about the pipeline, I'm assuming that's now like a combined Gallagher and AP pipeline. And how has, now that you guys have closed on the Assured Partners acquisition, how has, I guess, the M&A from their side of the house, how is it like added to the pipeline as well as just, you know, when you think out about kind of your bolt-on M&A over the course of like the next year or two?

Well, at least give us a couple of weeks on that. I mean, we just really get closed and we're kind of getting around to that. As I said, we've been doing a lot of visits. We're going to have most of their folks in the field come to the home office over the next month and a half or so. And that pipeline has not been yet put into our pipeline report. They did have a good pipeline. Things were working along. And of course, we're going to bring them together with our M&A people. But I don't have a real good handle on that yet. We're hopeful that that business and those opportunities will roll right over to us, but I haven't seen that yet.

Yeah, one thing qualitatively on that is that what's happened is as I sit down and talk to some of the branch managers that are agency presidents that have come over that have been merger partners and assured partners, I think a lot of them are – frankly, we're kind of surprised that we'd be so interested in it and that they're in smaller communities necessarily. They're not quite as large. So I think it's opened up the eyes to, you know, of those 30,000 agents and brokers out there that of all sizes, we have an interest. If you want to sell, you want to take care of your customers, you want to get better together, our doors are open for that M&A. So that's, I think there's an awakening that that We want good producers that want to produce and good agency leaders that want to stay on and be a part of their business. So I think that's going to lead for us getting more looks and more swings at the plate.

It'll also take a little while to re-coke, if that's the right word. People are naturally cautious. We're going down a discussion track with AP. You've now gone a different direction with Gallagher. How are you feeling about that? Are you still... wanting to put the recruiting press on me or are you feeling a little bit hesitant i think people want to naturally watch that i'm very hopeful that when it starts to cook it should cook well for us that's what i'm hoping thank you thanks elise our next question is from andrew clingerman with tv securities please proceed

Hey, good evening. So I just actually want to build on Elise's questions. You know, the first one on the organic growth, I recently spoke with two competitors in the small to middle market brokerage area, and both of them kind of said. In this shallow pricing environment, four to four to 6% is a good organic one rate that it's very doable and unlikely.

how does that strike you i mean does that does that feel like the the strike zone as opposed to you know in the past you were looking more at upper single digit just given the pricing environment yeah i think if you if we stood on january 1 remember we thought that we would be somewhere between six and eight percent and that's where we're going to fold out the difference is on some of that is you know our reinsurance business our international business so I think that you've got a good nose into what might be Main Street U.S. retail. I think where we top up on that is because of our wholesale business that performs well, our programs. We've got that business, and then we've got our reinsurance business. So those are the things that make me feel being more on the upper end of that spectrum or that range than within that range.

Got it. Thanks for that. You know, going back to M&As, and I get it's kind of too early to talk about assured partners, pipeline, and so forth, but just in terms of A.J. Gallagher appetite, if a large deal were to come across your desks, or if a deal outside of the United States that were large to come across your desks, would that be something you could do at this stage, just given... the sheer size of Assured Partners?

Absolutely, yes.

Great answer. Thank you. Thank you.

Our next question is from Gregory Peters with Raymond James. Please proceed.

Good afternoon. I guess, first of all, I appreciate the disclosure on on page seven of your CFO commentary. And Doug, I think you mentioned or just reiterated the $160 million of synergies that's not in these estimates. You can confirm that. Can you talk about the geography of that? Is that going to be in the operating expense or is that going to be revenue and operating expense? And I'm not asking to pinpoint by quarter, just you know, ballpark, where you think those synergies, how those are going to show up when we get to the year-end 26?

Yeah, I think by the time you get into 26, it's easy for me to always say a third, a third, a third. We're going to get a third for revenue uplifts. We're going to get a third because better, you know, coming together, we'll have some efficiencies in our workforce. And I think a third of that will come from our operating expenses. The more exciting number really comes when you get to that as you start to push 300 million of synergies out over the next year, really, over the next year and a half after the end of 26. I think you're going to see terrific opportunities for us to deploy our technologies, the AI that we're working at right now. You know, Greg, you've been around the story a long time. We have spent 20 years transforming our businesses. We have capitalized on labor arbitrage. We've deployed technologies. It's just part of our DNA. You put that over our tracks, and you put that $3 billion over our proven places where we've been able to deliver efficiencies, productivity, and raise quality, I think it's ripe for a tremendous, tremendous amount of better together uh, even maybe even better than what we're saying right now.

I think the better together stuff to Greg this pad is the is the whole revenue side of things. I think there's a lot more closeness in terms of what we're producing, and there's a lot more opportunity to trade together. They are clients of RPS, but not to the same extent nearly that are that our president platform does contribute to RPS. They've got a host of business, although they're a spread middle market broker. They do have a ton of business in the UK. We've identified literally millions of dollars of business opportunities to trade with ourselves there. And so just across the board, we've already produced a million dollars of new accounts with them in six weeks that are accounts we both mutually had in our prospect system. When we went out together with our tools, their connections, our connections, it made it easy for that buyer to join us. There's literally thousands of those opportunities. So I think the trading better together is a real opportunity.

Thanks for that. And in your answer, you know, you mentioned that you're going to have the AP gets credit in their book for their revenue synergies. And so it seems like you're keeping two books for the purposes of getting through the earn-out period. But... Am I to infer from your comment that you're going to be taking or trying to encourage the AP retail reps to use RPS as opposed to other sources? Is that going to help drive your wholesale organic? Or if something like that happens, does that go on to AP book and we don't see that manifest itself in terms of organic results for AJG?

Does that make sense? I'll let Doug comment on how we'll account for it. He's got that down. But let me tell you about the opportunity. As you know, probably about five or six years ago, we went through the arduous task of going out to our retailers and cutting back from probably 500 separate wholesalers being used across the entire platform in absolutely no coordinated way. And we moved that across to four specific strategic relationships One of which was RPS, our own wholesaler, recognizing that we needed others besides just ourselves. That I call it arduous because it was trench warfare and we got it done. And by the way, we did that to benefit our clients and improved it over and over again. Well, AP is just Gallagher 15 years ago. So we're going to have to go through that process and we're not Tom Frantzler, we're not mandating they use rps but we will start the process in the new year of saying look there's basically five and that will add one to that and that and that will be it and we're going to just keep pushing and pushing and pushing. And that, of course, does include what we would hope to be an outsourced, an outsized opportunity for RPS. Doug could talk about the accounting.

Yeah, Greg, in that example, if we move it from wholesaler XYZ to RPS, that would be considered organic growth in our legacy numbers. And remember, we're talking about another 10 months of this, right? So that would be legacy Gallagher organic growth. If they come on to a base commission schedule where we were getting 16% commission and they were getting 14%, that extra 2% of that base commission would be credited to that assured partners historical branch. Does that keep us from having to consolidate these businesses for purposes of that solely? No. There's a self-adjusting mechanism because it's going to go to the producer. That extra compensation will go to the producer. And for us to track the producer, whether they move from branch A to branch B, It's not going to produce any more difficulty. We're not keeping them separate from us. There is no earn out on assured partners other than those that they bought that were still on an earn out. So we will have, you know, their earn outs, but those will go away in another year and a half too. So it's not going to put a burden and we're not doing anything to keep. We're trying to put everybody on the same system and get everybody, you know, in the same playbook as fast as possible.

Thanks for all that detail. I guess for the final sort of cleanup question, just back to market conditions, there's a lot of rhetoric in the marketplace about where we are in the pricing cycle. And I noted your comments that you're seeing some continuing stability and especially your middle and small market exposures. But maybe you can you know, Pat, you've been around, I don't know what number cycle you're on at this point in time, but there's a number of them. And I'm just curious how you think this is going to play out over the next two or three years, because certainly it seems like large account property is under a lot of pressure and there's some other areas where there's pressure points.

Yeah, I'd be glad to talk about that. I've done this in the past, Greg. So it's consistent with my previous comments. Surprising to me a couple of years ago when I was in London, We've just gotten done putting forward and selling 300% renewal increases on our public company DNO book. And I was with the FI team in London. They said, Pat, this thing is going to soften fast. And I'm like, how can that wait? How did that happen? DNO is going to start to drop down. And so is cyber and go, guys, we gotta be kidding me. And that started about two and a half, three years ago and continues. While at the same time during that period, other lines were continuing to firm. So what I think we're seeing this time, which is different from the cycle in the late eighties into the nineties and different from the cycle in 2005 is that there's less of all lines down all lines up, which is why we try to give it in our prepared comments. The property market clearly is in a good spot for clients. It's been a hard place for clients the last number of years. They're getting some relief. That's a positive thing. When you take a look at the casualty market, isn't it interesting that we're still seeing rate increases there as they look to the tail on that stuff and realize they've got to adjust to it. So I do believe that you have cycles within the cycle, which is different than the past, and this is my fourth. Robert Marlayson, it's different than i've seen in the past, and I think kind of makes sense, so I think you know we're always one storm or one disaster away from affirming property market. Robert Marlayson, casually takes a long time to sort of figure out you don't know your cost of goods sold that it bleeds in. Robert Marlayson, And then you've got ancillary lines like package and what have you the interesting thing to me is that this is all also bifurcated in a different way than it was in the past. Our large accounts are demanding discounts, and they're getting bigger ones. Makes some sense. They wield more premium. Smaller accounts, which were in the last cycles down as well, not so strong. So we'll see how this all shakes out, but I think the dominant theme here is it's going to be cyclical. It is cyclical, but I think it will be by line and by results by line. Cycles within the cycle.

Got it. Great answers. Thank you.

Our next question is from Meyer Shields to KBW. Please proceed.

Good evening. This is Jinghong from there. Thank you for taking my question. My first question is a follow up on the pricing dynamics. We do see some deceleration in casualty, so 6% this quarter. Do you think the trend will continue to decelerate or stabilize from here? Just wondering, what is your expectation going forward?

So what you're saying, let me make sure I understand the question. You're seeing a deceleration in the casualty pricing increases, not a decrease in casualty pricing. We're not seeing that. We disagree with that.

Yeah, listen, I think that on a quarter by quarter basis, you could get a little bit of mix difference that might cause us to look at that. Let's face it, this thing's marching up at 6% to 8% a year, has been for three or four years. I don't think things are getting less risky out there. I think that the carriers are being smart by staying ahead of this and continuing to march forward on the casualty pricing. The other thing, too, is remember, I know you're asking questions about weight. There's also exposure unit change underneath there, and then also our customers remember this. When rates are coming down, they opt in for more insurance. They buy more insurance. When rates are going up, they opt out of it. So we're actually seeing revenue increases in lines that are higher than what rate declines that we're seeing in it. So the fact is people are buying more insurance within that line. I eat more exposure. They, they drop their deductibles, they raise their limits. So they're buying one. So the brokers will never show it. We'll never track 100% to rate because of this opt in and opt out. And we used to speak about that a lot 10 years ago. So it's not just rate. It's just what are our customers budgets going to afford? And as our customers grow, we'll sell more insurance too. A person has 100 trucks and they go to 105 trucks, they got to buy 5% more truck insurance.

Got it. Thank you. My second question is kind of on the industry. So we noticed Juan Boca continues to expand its wholesale operation in London and recently enters the US retail market. Just wondering what's your take on this and how does this impact Delica?

Well, I'm not going to comment on our competitor's strategy. Things are perfect for us. Thank you.

Okay. Thank you.

Thank you.

Our next question is from Mark Hughes with Truett Securities. Please proceed.

Yeah. Thank you. The employee benefits, you had some slippage in a couple of large life cases, but as a general line of business, how do you see that shaping up for fourth quarter 2026?

Well, the fourth quarter is a time where we do a lot of our helping customers enrollment. We see that as pretty strong right now. I think that there's a lot of help as people are trying to change their dynamics, so we're helping folks out with that. I think that it gets into the executive comp lines where people are looking for their strategies coming into proxy season. You know, in the base medical sales right now, too, I think that human resource leaders are waking up to the spiraling changes at the increasing cost of medical inflation, both on the utilization and then cost on the utilization. So you're having a frequency that pop up. I think this is going to be a time where if you go back, I don't know, X years ago, I think there's always a war for talent. But right now, I think human resource folks are really working hard on this escalating cost of medical inflation. That will put some opportunities into our books here in the fourth quarter, and I think it will keep us really busy next year.

Yeah. How about new business, Pat? In your experience at this time in the cycle, things are a little – understanding that casualty is still up and still is a tough market. Is it a little easier or harder or about the same to go out and get new businesses?

No, I think you're raising a good question. It's kind of an interesting time. First of all, it's, it's nice in a time like this, you can deliver for your clients. It's not, we're not, we're not constrained by capacity in just about any way. At the very same time, you have our littler competitors, and you'll recall that we compete 90% of time against smaller players. They can surprise us with a quote we didn't expect. You know, you can end up sitting there saying this is a great deal, and someone will come in with something crazy. At the same time, quite honestly, our clients are not happy. They've gone through five years of listening and listening to increases and what have you. We've been able to show them with our data and analytics why it's happening, where it's happening, what to expect. But sometimes that local guy will get a shot at something and deliver a price we've got to match or what have you. So I think that it's both a very good time for new business because our people that are aggressive on the phone, out talking to people, can really deliver. At the same time, we have to reemphasize and resell the existing book we have. And I think we're good at that. Overall, I think it's probably a positive for new logos, and it's probably less of a positive for top line revenue growth.

Very good. Thank you. Thanks, Mark.

Our next question is from David Motomaden from Evercore ISI. Please proceed.

Hey, thanks. Good evening. I had a question just on the property market. It was encouraging that RPC held in at down five. I think it was down seven in the second quarter. Just given the light storm season, I'm just wondering how you're thinking about just the property market overall going forward, not only for the fourth quarter, but then also for next year.

I think the property market is going in a direction that makes some sense given the fact that they've got good results. The cap bond industry is doing well. Record ILS activity. Reinsurers are making a good return on what they put at risk. I think there is more capacity available. I think there's continued pressure on the downside.

That influences our pick. If it was down 5% to 7% this year and what we post this year, next year, if it's down 5% to 7%, that's baked into our outlook for next year.

I will say this, David. I do not sense a dramatic decrease coming in the fashion of past cycles where all of a sudden you turn around and it's off 15%. I'm not sensing that at this point.

Got it. That's helpful. And, and so the, the sort of like a down five to seven is embedded Doug and, and your early thoughts on, on next year looking similar to this year.

That's right.

Okay, great. Thanks for it. Thanks for confirming that. Um, and, and then also, um, you know, it seemed like the RPC, um, you know, was, was fairly stable with what you guys had said and some of the other lines, um, you know, versus September.

uh... this if i think holistically about the book could you just talk about what rpc is trending at or what it what what it was in the third quarter compared to the second quarter and maybe where was in the first quarter yeah i think overall that we're seeing basically four percent increase and and uh... across the book i think that said that in the early part of his comments by got lost in there a little bit that overall we're still seeing a business where they were they were the rate and exposure are moving north 4%, 5%, something like that.

Got it. Thanks. And then maybe if I could just sneak one more in, um, I noticed that you guys generated about 500,000 on assured partners, fiduciary balances, um, in the third quarter is, you know, I would have thought that that would be, um, you know, a decent sized opportunity for you guys. Um, Is that something? It doesn't look like much of a change in your fiduciary expectations for the fourth quarter. I know the interest rate environment has changed a little bit, but how are you thinking about the fiduciary cash at Assured Partners and how much revenue you think you can generate off of that next year?

I think it's a great opportunity over a long term. If you go back, and I think one of you, it might have been Adam Klauber, was asking a lot of questions about what we're doing in order to channel working capital. We would talk about consolidating bank accounts over and over and over 10 years ago, and we really did a great job of bringing more efficiency to our free cash flow uh management are pooling across uh divisions and then also just the ability to quickly harness uh the the the the fiduciary monies and put them into interest bearing accounts so i see it as a terrific opportunity i got to go back and take a look at our assumptions going forward and we'll probably update those in december a little bit but by and large i think over the next few years and trivially we haven't baked that into our our our our synergy assumptions and when i've been talking but there will be an opportunity for us to to uh consolidate those accounts and and harvest that that those cash flows faster and at an interest rate that's a little bit higher than it was 10 years ago there's a pretty good payback on that yep understood thanks guys our next question is from ryan tennis with cancer fitzgerald please proceed

hey thanks good evening guys um definitely like one of my favorite leadership teams between pat doug ray but i got a couple kind of tough questions first one for pat second for doug um all right pat uh so so first one i was going through some old transcripts like i think it was 2013 um maybe 2014 but it was when the The last hard market was kind of in this situation. And you guys were doing one organic. And what I'd say, Pat, is you sounded on those transcripts the same way you do now. We're killing it. We're doing everything. Positive, bullish, and really excited? Exactly. But you were doing one organic. And that was execution. And now you're talking about six. But my question for you is, what is actually different? Because I think you appreciate this time in the market, and I'm curious what you're thinking about why you'd be able to do six now, and back then one was good.

Well, it's really simple. I mean, first of all, the market's not falling out below us as fast across all the same lines. Right now we're dealing with still across all of the lines a positive 4%. If you go back to 13%, 12%, and 14%, and look at what was actually happening. It wasn't until about 15, 16 that any price increases anywhere were coming into positive territory. So we're now, our renewal book is still producing three to 4% organic and yes, property's down. And of course, at the time when we were talking in 12 and 13, I think we had a pretty clear vision of what we were trying to accomplish. And even though the pricing environment was down, we saw opportunities to do good acquisitions, to become more efficient. I mean, at that time, people, you know, we're over 20 plus years now of working with our colleagues in the GCOE, both in India, in the Philippines, in Scotland, in Las Vegas. We're up about 16,000 people providing over 500 services to us around the world. Yes, there's an arbitrage in cost there from employment, but there's really a huge increase in productivity and quality as well. What we do is better. And I think we saw that. We were very excited about it. And, you know, I look back at those times, and at that very time, what you'll recall we were telling you is that the two-pronged approach. People look at acquisition activity and go, well, you bought that growth. That doesn't count. Well, last I looked, when you buy something at an arbitrage, in many instances as much as 50%, someone's giving me a dollar for 50 cents. I think that's a pretty good deal. And I see the same dynamics now. In fact, if anything, the dynamics are stronger in our presence now because we're bigger, our brand is stronger, our data and analytic capabilities. Just take 2012, we did not have any real capacity to take structured data and tell you the things we told you tonight. What happened to work comp last month in Oregon? I can tell you. I can tell you what happened yesterday. Our data lake, one source, now actually comprises three years of the AP data. We've gotten that done in less than two months. So when we go with Gallagher Drive to the field, and we talk about people like you buy this, and this is what's happening to rates in our book, that's real Gallagher slash AP data as of today. By SIC code, by line, by geography. Customers want that stuff. So do we weather up and down rates? Yes. You know, Ryan, just pull up the chart and look at our TSR. Seems like it worked.

Before you give me a tough question for me, let me throw on one thing. 2013, no international president to speak of. We hadn't done any acquisitions and built the business we have in the UK, Australia, New Zealand. We didn't have reinsurance. RPS was, yeah, use them if you want. We didn't have the programs that we have now. Back in then, Gallagher Bassett was a pretty good grower and still is a pretty good grower in the claims businesses. People saw the value that they create. We're a different business today by far. The excitement hasn't changed about our opportunity because we still see opportunity. still see opportunities to trade better with ourselves, to take more market share, to outsell our smaller competitors. So it's a different franchise today than it was in 2012. That should bring you some optimism that if we're opposed to 1%, then make 6% look pretty easy now. I wouldn't say easy. Go ahead, Ryan. Next up.

Give me my hard one. All right, here you go. So your hard one, Doug. Yeah, it's not easy, but, like, you're known on the street definitely for throwing a real fastball, like 101. You always nail everything. I go back to 2020. It's like you had a bug in everyone's living room. You knew exactly what you were going to do. This was in, like, the most uncertain environment in the history of the world. We've got a couple quarters here, though, where, you know, we've had... an investor preview, and then you've fallen a little bit light. I'm a little worried you're overworked, but I'm wondering, like, where's the fastball a little bit in terms of being able to, like, forecast adequately or accurately exactly what's going to happen?

Sorry, guys.

Again, thank you.

Yep, the 5% that we talked about in September, I did give you a heads up that there could be some slippage because of the large live sales. That's $11 million on a $3 billion quarter. So, yep, that one, I told you it was coming. The adjustment in the contingent commission line that they have to true up for an international program that sometimes has some three-year rating on it. I just didn't have insight to it, but across about on a contingent contract where we've probably got about 600 different contingent contracts, that cost us $4 million too.

You're right.

Of the $11 million out of $3 billion, I was off my game on those two. Half of it got past me.

I love you guys. Thank you, though. I appreciate it.

You're right. I missed $4 million out of $3 billion. Sorry.

Our next question is from Andrew Anderson with Jesse. Please proceed.

Hey, good afternoon. Just as we're thinking about kind of the building blocks to organic here, I think you've talked about international a bit as maybe being additive or incremental. I guess if I look at some of the international retail, UK, Canada, Australia, New Zealand, it's kind of been like low single digit year to date. Are you expecting some uplift in 26 or kind of steady in that market?

Listen, I think right now our businesses are performing about where they're going to perform next year. I got to say, I'm always pleasantly surprised about our specialty business in the UK. They are creative. They use our tools. They have great market insight. I'm really excited about the niche experts that we have in our business. You know, when we pick up the AP business, it makes our niches stronger. And also, we're picking up some terrific experts. new niches out of the ap where they've got some really smart people so wherever we have our smart people they they hit it out of the park all the time and we have the steady smart people that that are in kind of tough markets so i don't see a lot of difference between uh what we just talked about here you know this year next year our guys uh and gals are doing a terrific job out there servicing their clients and uh So I don't see a lot of difference. If that was the essence of the question, I'm just not seeing any places where we've got any weakness right now.

Got it. And then, you know, in the past we've talked about maybe 6% organic underlying expansion of 60 BIPs or so. How should we think of maybe the sensitivity there if that growth is being led by specialty, which I would think is a little bit higher margin versus retail, which is maybe a little bit below? Any sensitivity we could be thinking about there?

Listen, our specialty business is pretty complex. The professionals that we have on staff to service that, you know, it's not just somebody that's a generalist that goes out and talks about how you sell insurance on an oil well or on a SpaceX cargo or on a marine placement. Those tend to actually have some heavier support costs that goes along with it. And our benefits business, the actuarial services that we provide in particular that coming out of the buck acquisition. So, you know, I think our niche retail business where we're really strong in a particular niche across, it doesn't matter whether it's the US, Australia, New Zealand, so that runs pretty good margin. So I wouldn't, you know, I wouldn't say that specialty is necessarily a laggard when it, that retails is a laggard especially when it comes to margins.

Thank you.

Andrew?

Our next question is from Katie Sackis with Autonomous Research. Please proceed.

Hi. Thanks. Just a quick one from me. I realize that it might be a little bit too soon to tell, but thinking about the 200 bps headwind from Roland on this quarter's brokerage adjusted EBITDA margin, how might we think about, you know, impact from rolling of M&A going forward?

All right, good question. I think that, first of all, you have to think about the seasonality that we show on page seven of only getting a half a quarter, not even a half a quarter, 40% of a quarter and how that causes, because you've got more of a steady fixed cost structure on a lower, you know, one and a half month period. How do I see it going forward? Let's just take the fourth quarter in particular. I think that assured partners, because of the seasonality, their business might hurt margin by about a point. I think the roll-in of businesses that we bought that naturally run lower margins would probably be about 40 basis points of a headwind. I think that lesser interest income, et cetera, might be somewhere around a half a point. But the underlying margin we're seeing in the fourth quarter, still in that 40 to 60 basis point expansion. If you think in ranges like that, that we're going to get, you know, a half a point increase from organic, we're going to get back a point because the seasonality of that and assured, and then the natural roll-in of M&A targets that have not yet reached our margin levels is another half a point on it. So that's how I'm thinking about it.

Thank you.

Thank you. Our next question. Our next question is from Rob Cox with Goldman Sachs. Please proceed.

Hey, thanks. Yeah, just a question on reinsurance brokerage. Just wanted you guys to help me out here. So you've been growing in excess of your two larger peers in this business for a while. You know, it sounds like you're still confident here. If pricing takes another leg downward, you know, I just trying to gauge your, your confidence level and still being able to achieve like high single digit organic here. And is that due to growth in adding new accounts or is that a growth in an account that you already have?

Oh, I think it's both, but I'll tell you one of the things that has worked out, uh, Rob at a level that I I'm very, very proud of when we did the Willis transaction, One of the things we told the investment community and our people is that we thought there was an advantage of making sure that our retail operations, our wholesale operations, and our reinsurance operations were seen together on the same page, helping each other produce and service clients. And frankly, that's a bit of a different model than some of our competitors. And that has worked to a level that I think is better than any of us expected. So our team is talking all the time We are connected at the hip. You can see that the CIB, that's the Council of Insurance Agents and Brokers, just had their rendezvous, if you will, out at the Broadmoor a month ago. And the meetings are comprised of all the parties that are trading with those companies. The discussion on strategies are together. And I think that's a big part of it. And so I think that when I look at where we are, We've had good growth with our existing clients. We've been able to help them, and we're very appreciative of that, and we have added new accounts. Now, the thing that I'm kind of excited about with AP, quite honestly, is that they're trading with a lot of smaller markets that we've never traded with. I won't get into a bunch of names, but you know them all. And yet, we didn't really transact. And AP has very good relations with those companies. So coming out of the Broadmoor, we're kind of excited to say, you know, this doesn't diminish our continued commitment to our large trading partners that we've had at Gallagher forever, but adding some new people to the list that AP already has a real positive relationship with, I think, once again, we'll be tied together at the hip. It'll be good for production on all sides. So I think new account opportunities benefit from that, as well as penetration from our existing business. I continue to be very, very bullish On reinsurance, I'm very impressed with our team there. We've got a very smart group of people.

Two other ads on that. Every time we open up a new carrier relationship on the retail side and have it, it opens up the opportunity to not only do reinsurance, but also to do claims management for them. Our Gallagher-Bassett unit has a terrific carrier outsource practice on that. And that's not runoff. That's carrier outsource of white labeling their programs. And the second thing, too, is on our reinsurance program, we are – We are really strong in casualty, so another step down in property. I think there's going to be lots of appetite to buy more reinsurance, but we are pretty heavy in casualty, so you can't think about the entire reinsurance book as being a cap property book. Hope that helps.

That's super helpful. Thank you.

Thanks, Rob.

I just wanted to follow up on contingents. Profitability for these insurers seems to be pretty good, and I think those are, you know, a little lag there. So I'm just curious if, you know, your thought process on contingents plays into your thought process on, you know, relatively stable organic growth next year.

Yeah, I mean, I think, look, when the carriers are doing well and we're on a contingent commission, and that's a very big part of what we're doing as wholesalers, MGAs, and program managers, we do well. So I feel good about that. And we're pleased to see those carriers that we've been representing and partnering with doing well. And we will get our fair share of continuance on that. Now, the other side of that is that we have supplementals, which are not subject to profitability, but are subject to growth. And there again, I think we're seeing very good growth. And I do also believe that the arrangements that we have with many of the carriers that AP does trade with, our arrangements are stronger than theirs. And they're going to benefit from that. So all in all, I feel good about our supplementals and contingents going into next year.

Yeah, by fact, they are growing at about one and a half times as fast organically as what we're growing in the applicable books of business. So they are outpacing slightly on the organic growth. And as we think about next year being like this, we're not expecting a spike up in those or a spike down. you know, the carrier profitability is good as it there could that could be a little bit of a of an upside case and organic for next year.

Great. Thank you.

Sure.

Our last question is from Mike, the room with the capital markets. Please proceed.

Thanks.

On the organic viewpoint next year, So what's your estimate of embedded in there on lumpy life sales? I know you guys don't love us asking about it, or maybe I'm wrong, but you do keep bringing it up. So I feel like I have to ask.

No, actually, we don't mind you asking about it at all because I think it's informative on some of these small little, you know, a couple million dollars here, a couple million dollars here. We think we'll have a good year next year as rates drop. next year if you believe that to happen either one or two things are going to happen rates are going to drop and so they're going to have people that want to come in and buy this because it's a it's a cheaper product from so that should fuel demand if rates become stable we don't we're not going to have people wait around for the next drop so i think and a lot of these are are products that You have to buy them at a certain point. So you can play with timing the market by a quarter or two. But by and large, I see 26 being a more favorable backdrop for these products than 25. Now, over the course of the year, they don't vary all that much in total magnitude. It's this noise between quarters that sometimes causes us to talk about a lot. It's a great product. We're really good at it. It's needed. It's necessary. And I think in 26, we could be pretty excited about it. But it hasn't influenced our pick in terms of what we see for next year. But I could see an upside case on that, too.

Okay. Okay, so not quantifying it, but I guess I ask and others ask is, you know, if we look at the RPC trends in recent quarters and if you unpack some of your thoughts on next year for property to David's question, you know, it kind of would imply that if we assume the current RPC trend sticks that, you know, six to eight is just a high bar, right? unless there's just right other factors, which maybe it's lumpy life. And you just alluded to, maybe there's, maybe there's the contingent and, and sub trend growing faster or it's reinsurance. So I know I'm saying a lot, but maybe is there, should we not be focusing on kind of RPC as much as we used to, uh, because there's kind of other levers you have to pull on organic to be able to kind of do so well next year in a decelerating kind of pricing environment?

Listen, we've always said that, again, I'll go back to my first comment on one of the first questions today, is that we're in this opt-in era when it comes to coverages. So that would be the departure from As people get cuts in their base rate, they're going to buy more insurance. So that should fuel next year. I believe there's a lot of underbuying of insurance that's going on. I think that people over the last five years have underbought. I think that we still, you know, there's a big elephant in the room, and that is replacement costs. I don't believe, I think the carriers have paused and tried to get rate for that. I think they've got to get back on that because replacement costs are still skyrocketing. And so I think there's an upside case there as carriers get back on trying to get more rate for the exposures that are underinsured values on that. So it's not a direct correlation by any means. That's why we weren't growing our property business 20% when property was up 20%. We were growing half of that. So that's the area that we're in right now is that people are going to opt in to buy more coverages. I think we're going to win more business because we get to use our tools and resources to demonstrate that in a calmer environment that you get more from buying through Gallagher. The value we're bringing, I think clients see that our retention is good. Yeah, like Pat said, there are some angry clients that probably are going to want to get a new fresh face across the table, but I think our team is doing a good job to show you, you know, stick with us and we'll get you through this.

Okay, that's helpful. And maybe just lastly on M&A, you know, so to the extent I'm sure you guys will understand hit your targets on Unassured in terms of all the synergies and whatnot, you know, clearly it'll be a great deal for everybody. So I'm curious if there's other Assured's out there. Obviously there's lots of roll-ups out there, but I recall, you know, Pat, you said that for Assured, you didn't get a look at lots of their, of those properties that Assured had purchased. So you kind of felt more comfortable doing this deal because they didn't say no to Gallagher in the past. But so are there other similar ones out there or maybe You just wouldn't be willing to do more of just other roll-ups that might have been looked at at Gallagher in the past too. Thanks.

Yeah, I think there's a lot of them. I do. I think there's a lot. And I also think that they remember there's 30,000 agents and brokers that's firms in America that are, that are independent firms. So there's lots of opportunities for us to continue building our pipeline. And should another opportunity like an Assured come along, we'll take a very hard look at it.

But I think it should be clear, like you say, there are so many terrific family-owned agencies out there that I think that we're going to get our fair share of those along the way, too. So we love our tuck-in strategy, but if there's a big one that comes along and, you know, Only 5% of them told us no when we were looking at them. I think that would be a terrific opportunity for us.

Thank you.

Thanks, Mike. Well, thank you again, everyone, for joining us. We've had a great 2025 thus far, and as you can tell, I remain very excited about the rest of the year and beyond. To our now 71,000-plus colleagues, thank you. For all that you do for our clients, day in and day out, we've got the best team in the industry, and I think it shows. Thank you all for sticking around late in the evening, and have a good rest of the evening.

Thank you. This will conclude our conference. You may disconnect your lines at this time, and thank you for your participation.