Arthur J. Gallagher & Co.

Good afternoon, and welcome to Arthur J. Gallagher and Company's first quarter 2026 earnings conference call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. 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 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 risk 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 reconciliation 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 and Company. Mr. Gallagher, you may begin.

Thank you very much. Good afternoon, and thank you for joining us for our first quarter 26 earnings call. On the call for today is Doug Hall, our CFO, and other members of the management team. We had a terrific first quarter. For combined brokerage and risk management segments, our two-pronged revenue growth strategy Growing both organically and through acquisitions delivered revenue growth of 28% in the first quarter. Organic growth was 5%. And M&A contributed 23%, driven by strong results from assured partners. On a segment basis, brokerage revenues were up 30%, of which organic was 5%. We saw strong growth across retail PC, wholesale, reinsurance, and benefits. Our risk management segment, or Gallagher Bassett, posted revenues up 14%, of which organic was 10%. We saw excellent new business and strong client retention. And we continue to generate excellent profits. Our brokerage and risk management segments combined reported net earnings growth of 12% and adjusted EBITDA growth of 18%. This quarter marks 24 consecutive quarters of double-digit adjusted EBITDA growth. And we had another quarter of solid underlying margin expansion, which Doug will break down for you in a few minutes. Today I'll touch on all four of our strategic pillars, growing organically, growing through mergers and acquisitions, improving our productivity and quality, and our culture. First, organic growth. Our client retention, new business win rates, and client business activity continue to be tailwinds. And in today's environment, insurance rates are still contributing to organic growth, but to a lesser extent than over the last few years. Carriers are continuing to behave rationally and looking to grow in lines and geographies where there's an acceptable return, yet remaining disciplined by seeking rate increases where needed to generate an appropriate underwriting profit. Good loss experience accounts can typically see premium relief, while accounts with poor experience are seeing increases. Breaking this down by businesses. Within our global retail PC businesses, the first quarter 26 market environment is materially unchanged from the prior quarter. Insurance renewal premium change, which includes both rate and exposure, continued to increase in the low single digits in the first quarter, with property decreases more than offset by increases across most casualty classes. By product line, we saw the following in our global PC retail businesses. Property down 7% with rate pressure most pronounced in cat exposed and larger risks. Professional lines, including DNO and cyber, up 2%. Workers comp up 2%. Personal lines up 4%. Package up 2%. And casualty lines, which includes general liability, commercial auto, and umbrella, up four percent overall excluding property renewal premium changes increased four percent in the quarter with higher increases in the u.s versus international markets we continue to see significant differences in renewal premiums by client size with our larger accounts driving much of the downward pressure and premiums our customers are opting in and buying more coverage as their prices decrease Whereas over the last few years, they were opting out of coverage when their prices were increasing. Within the U.S. excess and surplus market, we continue to see a bifurcated market. We're seeing some markets behaving differently after several years of a very strong hard market. E&S property, particularly cat exposed risks, is the most competitive area right now. That reflects a pricing reset, not a demand issue. Policy counts and submissions remain healthy, and ENS continues to be the right solution for complex property risks. ENS casually remains firm. Renewal premiums are up mid-single digits, capacity is disciplined, and demand is steady across general and excess liability, as well as umbrella. ENS professional lines are largely stable, with renewal premiums up low single digits and better underwriting discipline than in prior cycles. The fastest growing part of E&S continues to come from emerging specialty risks, such as data centers and AI-related infrastructure, as well as other complex exposures. These risks don't fit well in the admitted markets and represent a structural multiyear growth opportunity for E&S. Moving to reinsurance, the market remains well capitalized and renewal activity continues to reflect ample capacity. In the first quarter, we saw strong growth across lines and across geographies with another excellent quarter of new business overcoming rate headwinds. At the 1-1 renewals, we saw rate decreases across property, especially lines, with lower layers holding up better than the top end of the reinsurance towers. Within casualty, pricing was broadly stable as most reinsurers remained cautious around U.S.-focused casualty risks given lost cost trends and prior to loss development. Outside the United States, additional capacity put some downward pressure on pricing in selected markets. The 401 renewals showed similar conditions with a bit more downward pricing pressure on the Japan-specific renewals. Outside of Japan, we saw continued interest from carriers in managing earnings volatility and supporting growth through additional protection. Geopolitical developments, including the conflict in the Middle East, are impacting specific coverages such as marine war and political violence and terror, though it's too early to assess any broader ultimate impact on reinsurance pricing. Today's dynamic market is ideal for our reinsurance team to demonstrate our expertise, product knowledge, and data-driven capabilities to ensure the best coverage for our clients. Turning to London's specialty. Similar to U.S. E&S market, pressure continues In North American cat exposed property, while competition and professional lines, financial institutions and cyber is moderating related war related risks remain the clear exception. Marine aviation and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment and capacity or cover remains available, but it requires careful structure and coordinated execution across markets. Our teams across London, the U.S., and our international network are working closely together to secure capacity under current market terms and help our clients to navigate this rapidly changing environment. Moving to employee benefits, which continues to perform very well. We're seeing steady demand from employers across health, retirement, voluntary benefits, executive benefits, life, and HR solutions. Our clients are still actively hiring and remain focused on talent attraction and talent retention. And there's more and more demand for our experts to provide creative solutions to help our clients control their escalating benefits costs, driven by general procedures, innovative medical treatments, and as well as prescription drugs. As clients compensate us based on our advice, advocacy, creative plan design, and cost management strategies, all of which support both demand and retention across our benefits business. Last but not least, Gallagher Bassett posted another strong growth quarter. We continue to see strong new business and excellent client retention. The team is adding new products, new services, and embracing new technology, including AI and machine learning, to further improve the claims experience for our clients. Gallagher Bassett is positioned for fantastic growth again in 2026. Next, let me provide you some comments on our view of the economy. The U.S. labor market continues to show strong demand for new workers, with the number of job openings still ahead of the number of people looking for work. Our daily revenue indications have historically been a terrific indicator of economic activity. Our proprietary data from audits, endorsements, and cancellations continues to show solid business activity through the first quarter, and actually through yesterday. This data shows that exposure units such as revenues, payroll headcount, or trucks on the road, to name a few, are still in positive territory and our clients' businesses are continuing to grow. So to wrap up my thoughts on organic growth prospects, today pricing, property pricing is moderating. That's well understood. But property is only one part of our very large and very diverse portfolio. Casualty, benefits, reinsurance, and Gallagher Bassett are all strong. and that strength is broad-based across geographies, client sizes, and products. In addition, our client exposure growth is solid, our retention is stable, and we are seeing excellent new business wins, all positively contributing to our organic growth. The demand for our expertise continues to grow because clients value our advocacy, our analytics, and our ability to navigate complexity. This gives us confidence in the durability of our results and provides further confidence in our 2026 full-year organic growth outlook of 6%. Now, shifting to our second strategic pillar, mergers and acquisitions. During the first quarter, we completed nine new tuck-in mergers representing around $60 million of estimated annualized revenues. Looking at our pipeline, we have over 40 term sheets signed or being prepared, representing around $400 million of annualized revenues. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. As for the Assured Partners acquisition, we are following our proven integration playbook, developed from doing over 750 mergers over the last 20 years We are on plan without exception. The cultural alignment has been exactly what we expected, a culture with a strong client-first mindset and a genuine excitement for leveraging our expertise, tools, and capabilities. We are eight months in, performance is terrific, and we are already better together. Let me move to our third strategic pillar to continuously improve our productivity and quality. We view AI, digitization, and automation as a continuation of that longstanding strategy. It builds on decades of work standardizing processes, centralizing our global data, and improving execution, all to help our people provide the very best advice and service to our clients. At our March 17th Investor Day, we spent considerable time discussing how we were already deploying AI across Gallagher. I invite you to listen to this webcast still on our website. Let me summarize a few key points from our March commentary. First, we expect AI to be minimally disruptive when it comes to selling insurance, providing consulting services, and managing claims. Our business is advisory-led, complex, and relationship-driven. Second, AI actually should accelerate our growth. AI enhances our ability to deliver faster, higher quality advice and more tailored client solutions, improving our speed to market, win rates, retention, and provides better client experiences. Third, operational change is not new to Gallagher. For more than two decades, we've standardized processes and centralized our proprietary data across the company. That foundation allows us to deploy AI today across PC, claims, reinsurance, benefits, and mergers and acquisitions. Because we have embedded operational excellence into our DNA, we already have the brains and financial resources to quickly deploy AI. In our view, we're ahead, and that advantage compounds over time. Fourth, AI is already deployed across many of our core platforms and workflows. It helps our teams make better decisions and spend more time advising clients while continuing to raise productivity and quality. And finally, and most importantly, AI strengthens, not replaces, the broker and advisor model. AI is another tool that strengthens how we serve clients. It does not change the fundamental nature of our business. AI makes every single one of our professionals better at what they already do by amplifying our expertise, our data, and our market access. Let me wrap up by spending some time on our fourth strategic pillar, our culture. We are a growth culture, company. If you spend some time reading our mission statement and the 25 tenets of the Gallagher Way, you might come to realize that they are all really about supporting growth, but growing the right way, the collaborative way, the professional and respectful and ethical way, all the while holding ourselves accountable for execution and growing shareholder value. We are a long-term growth culture that recognizes we grow because of the relevance of our advice, our analytics, and our ability to navigate complexity, not because where we are in an insurance pricing cycle. We've proven we can grow through any cycle, and this one is no different. Culture also allows us to scale. As we grow organically and through mergers, we don't change who we are. Our culture promotes welcoming new colleagues into a model that emphasizes collaboration, entrepreneurship, and shared success, all supported by strong processes data and tools. And importantly, culture is what makes our investments in talent, technology, and AI work. Our people embrace change when it helps them better serve their clients, improve quality, and deliver stronger results. So when we talk about Gallagher's performance, our culture isn't separate from the numbers. It's embedded in it. Okay, an excellent quarter behind us, a terrific future ahead of us. I'll stop now and turn it over to Doug to walk through the financial details.

Doug? All right. Thanks, Pat, and hello, everyone. Today I'll spend about three minutes flipping page by page through our earnings release and give some quick highlights. I'll then spend about five minutes on the CFO commentary document we post on our website and then close with a minute on cash, M&A, and capital management. Overall, the punchlines you'll hear today, and you've probably already seen that in your review of our information, we are right in line and in many cases better than what we forecasted in our March IR day. Okay, let's go to the earnings release, page one. Just step back for a minute. Adjusted revenues, EBITDA, and EPS all up 30%. You'll get to those percentages when you remove from prior year numbers $143 million, that's 41 cents, of interest income we earned on the funds we are holding to buy Assured Partners. You'll read that in the footnote at the bottom of this page. That's an amazing quarter and demonstrates our four strategic pillars are delivering terrific shareholder value. Moving next to page two, brokerage organic at 5%, right in line with our March IR day expectations. One call out here. Supplementals and contingents combined up nearly 10%. As you've seen in the past, there can be some geography between those two lines, especially in first quarter as we renegotiate contracts to start a new year. Then at the bottom of the page, you'll see we had a solid start to the year for our tuck-in M&A program. Our two-pronged growth strategy combined, that's organic and M&A, posted 28% total revenue growth this quarter for our brokerage segment. That'd be 33% if we removed the 104%. $43 million of interest income on the AP funds. That's absolutely terrific. Moving to the top of page, moving to page three and the top of page four, as we discussed during our last few earnings and IR day calls, current quarter percentages at the bottom of these tables are not really all that helpful when compared to prior year, because prior year had that interest income from the AP funds I just highlighted. It really clouds comparability. So I think it's better for me to defer comments on our margin until I get to page 7 of the CFO commentary document. When I do, you'll quickly see that our productivity and quality strategic pillar delivered strong underlying margin expansion this quarter, right in line with our March IR day forecast. Moving now to the bottom of page 4, an excellent quarter for our risk management segment, Gallagher Bassett. Organic at 10%, And M&A added another two and a half points, bringing total reported revenue up 14% and adjusted revenue up 13% for this segment. This too shows the power of our two prong growth strategies. So moving now to page five, risk management showed continuous compensation and operating expense ratio improvement, leading to an adjusted EBITDA margin up 130 basis points. There is no noise in this segment from interest on funds held to buy AP. So it's very easy to see the excellent growth in our revenues, improvements in our productivity, and our growth in our adjusted EBITDA, all better than our IR day commentary and forecast. Flipping to page six, the corporate segment adjusted results in total were pretty close to the midpoint of the range we provided during our March IR day. So there's no new news here. Last on page seven, about halfway down, you'll read we repurchased about uh 1.4 million shares for approximately 310 million dollars this quarter all right let's leave the earnings release and go now to the cfo commentary document starting on page three most items are very close to what we provided in march so just double check that these items are considered in your models going to page four this is the new organic growth table we started providing last december here are the punch lines First, we saw solid first quarter organic growth across each business and geography, with each posting organic at or above our March IR date commentary. Next, we've now added our second quarter outlook and see similar performance for each of our businesses. These percentages incorporate all the information Pat just provided, such as net new business wins, customer buying behaviors, the rate environment, and the economic landscape. These are our businesses. Midpoint best estimates ground up as of today. Third, same with our full year outlook, which has not changed from March. We post that and 26 will be another excellent year of organic growth. Moving to page five, the investment income table. Three comments here. First, our 26 forecasts reflect current FX rates and changes in fiduciary cash balances. Second, our forward estimates now assume one future 25 basis point rate cut in September. Third, this is a helpful table to show you a full historical view of the amount of interest income we earned on the funds we were holding to buy AP. And it's a reminder, as a heads up, when you build your model, second quarter had $144 million of interest earned, and then $76 million in the third quarter of 25. which will again cause comparability noise throughout our results when we post our next two quarters results. Staying on page five, it's shifting down to the rollover revenue table, which excludes assured partners. Four quick comments here. First, the first quarter 26, subtotal of $126 million for brokerage came in pretty close to our March estimate. Second, looking forward, the pinkish columns to the right include estimated 26 revenues for brokerage M&A closed through yesterday. And of course, you'll need to make a pick for future M&A also. Third, one modeling heads up to make sure you adjust your prior year revenues for the divestiture and other line before you apply your organic growth assumption. And fourth, you'll see the same information down below for our risk management segment. All right, let's move to page six, information on assured partners. A few comments here. They're mostly modeling helpers, and then I'll add some qualitative comments at the end. First, remember that forecasted numbers we provide in this table are at the midpoint of our estimates. As we convert locations onto our systems, there could be some small movements between quarters and some additional small netting like we saw last quarter. Second, the footnote there reminds you that non-cash figures shown on this page, which reflect depreciation and earn out payable, are included within our estimates on page three. So please don't double count. Third, this table does not include any revenue or expense synergies. So those would be incremental to the numbers you see here, and you would need to model them separately. The footnote says that we still see annualized run rate synergies of $160 million by the end of 26, and then up to $300 million by early 28. That said, more and more I'm feeling there could be some additional upside to these numbers. Maybe I'll have an update during our June IR day. Fourth, a reminder that you can use for modeling, the second quarter 26 column as is, but for third and fourth quarters, you should only add the delta between the pink numbers and the blue 25 numbers. Fifth, as for financial performance, an excellent first quarter, which came in fairly close to our March IR day estimates. Only a few small changes to our outlook for the rest of the year also. Qualitatively, our clients are happy and client retention is excellent. The integration plan is tracking to our expectations. Our teams are energized and coming together. We're having some terrific new business wins, showing that we are indeed better together. And our employee and producer retention is strong and right at historical norms. All of this gives me confidence in our 26th financial performance outlook. Moving now to page seven, the brokerage segment margin bridge. Favorable comments. continue to come in that this picture is worth a thousand words. It's very easy to see all the components that influence our margin change period over period. Let's you quickly dig out that our productivity and quality efforts are delivering underlying margin expansion. You'll see that on the second to the last line of the table. We had terrific expansion this quarter of 50 basis points. And you'll see to the far right, we're still forecasting full year 40 to 60 basis points of underlying margin expansion. Both of those are right in line with what we had discussed during our March IR day. And despite sounding like a broken record, worth another call out that the first line of this table shows you the impact of investment income earned on the funds we held to buy AP. That's what will again cause the headline headache for the next two quarters. Then, thankfully, it should be an easier compare. All right, let's move to page eight, our corporate segment. You'll see that our adjusted first quarter as well as our outlook for the rest of the year are very close to what we presented in March. Just two call outs here. The upper right box shows you the changes in FX, which caused the corporate line to bounce around a bit. But remember, these unrealized gains and losses are non-cash. Now look at the lower right box. This is new and a bit of housekeeping here. We removed the separate page that recapped our historical clean energy investment cash flows. This box tells the same story, just shorter. It shows you that we have $655 million of tax credit carryovers that we will use over the next few years. Second, it also shows you that we have about $11 billion of tax deductible amortization expense, which we'll deduct in the future. Together, these two items are worth about $3.4 billion of cash tax savings, which gets you to the punchline we've added in this box. Our cash taxes paid will be around 10% of EBITDA for the foreseeable future. You model that and you'll get close. All right. Finally, a few comments on cash, capital management, and M&A funding. When I look at available cash on hand, expected free cash flows, and future investment-grade borrowings, Over the next two years, we might have close to $10 billion to fund M&A before using any stock. Our M&A pipeline remains strong and is full of targets at attractive multiples, which we are seeing coming down a bit. Still creates an immediate shareholder value through nice arbitrage. I mentioned earlier that in the first quarter, we repurchased approximately $310 million of our shares. We continue to believe our equity is woefully undervalued by the market, so this repurchase was opportunistic. But our priorities really haven't changed. We'll continue to invest in organic growth. We'll remain active in mergers and acquisitions, staying consistent in our approach and disciplined in our pricing. And we will deploy excess capital in a way that maximizes long-term shareholder value. So those are my comments. A great quarter to kick off what looks like could be another terrific year. Back to you, Pat. Thanks, Doug.

Operator, I think we're ready for some questions.

Thank you. And with that, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question comes from the line of Charlie Lederer from BMO Capital Markets. Please proceed with your question.

Hey, good evening. Appreciate Pat's comments on the strength outside of property lines. Just looking at slide four of the CFO commentary, can you expand on what your expectations for the higher organic growth?

in america's retail in the second quarter i guess it's just a little surprising given the greater property mix in 2q thanks so the question you're asking about uh if i look here in the second quarter we believe there's five percent in our america's retail brokerage segment is that what you're looking at yeah Yeah, all right, fine. So if you really look at what last year, what happened is Canada actually had a slightly smaller quarter in the second quarter last year. So that's why it gets it closer to that 5% number as we're going forward here.

Got it. Thank you. And then can you talk a little bit more about whether the M&A environment has changed over the last couple of months and how much that's factoring into your buyback decisions, and can you share how much you've repurchased so far in the second quarter?

Thanks. So the question here is, we've been in a quiet period the entire second quarter, so we have not repurchased any shares thus far this quarter. As for the environment at M&A, multiples are coming down. We are seeing that. We're seeing that sellers are becoming a little bit more rational on that. First quarter is historically always our smallest quarter, so you can't really read much into that. We typically have a wrap-up a little bit more to the end of the year. We'll show more in the later quarters. And then finally, I think that when it comes to balancing M&A versus share repurchases, if there's a terrific opportunity out there right in the middle of the fairway that makes us better together, that uh that is a long-term buy we still think there's value in that number over our shares so um it's uh but it's got to be at the right multiple in today's world thank you thanks charlie thank you and our next question comes from the line of elise greenspan from wells fargo please proceed with your question hi hi thanks um good evening my first question is on um

The core commission and fee organic growth, the 4% in the quarter, in your minds, does that represent a floor?

I'm sorry, Lisa, I just didn't hear you. Say it again. Does it represent a floor?

Yeah, like a floor to where you see the growth from here, the 4%.

Yes, as we look out for the – at this point in time, as we said in our prepared remarks, as we look forward, we see a pretty good year coming at us.

And then my second question, right, you know, you guys obviously provide a lot of guidance and disclosure by line, right? So it looks like organic growth, right, in brokerage, you know, you're looking, you know, four and a half in the Q1, 5% you're looking for in the second quarter, and you left the guide for five and a half for the full year. So that does imply a pickup in the back half. Doug, I think last we spoke, you were just talking about incremental reinsurance demand as being somewhat of a driver there. So, I mean, I know it's being a little nitpicky relative to, you know, half or maybe a point in the back half of the year, but is that still your expectation that that's what will drive improving organic growth in the second half of the year relative to Q1 and Q2?

Yeah, let me give you a couple of reasons why it's that I think that, uh, We have a really successful new business pipeline right now, and we're seeing that in reinsurance, retail, London specialty, and then really in our kind of captive business right now. We've also done a good job of getting in raises on our fee accounts, so that's a little bit of a tailwind. I think that we're going to see some pretty strong growth in supplements and contingents for the rest of it. You've seen the numbers the carriers are posting. That should bode favorably for us. And then I think there's just in general, we're seeing some pretty good success that's going to push through a property market. Now, property sells off over the next 60 days in a big way. That's going to be a whole different discussion. But it's in that 5% range. So it's plus or minus a little bit on that. I think we're in great shape.

And this guidance assumes consistent property declines for the rest of the year relative property price declines relative to what you saw in the Q1?

That's correct.

Okay, thank you.

Thank you. And our next question comes from the line of Dean Chris Celio from Wolf Research. Please proceed with your question.

Hey, thanks. So just sticking on the organic growth real quick, your full year estimate for the specialty in U.S. wholesale growth is 6%, which implies, you know, sort of a pickup of organic in the back half of the year. So I was sort of curious, you know, what are your expectations under, you know, because of the, you know, the pricing environment is obviously not great. So sort of your expectations as to why you think it will pick up. Thanks.

All right, so the question is, here's the thing. Property is going to take its biggest toll in the second quarter, so I think in the second half of the year. We've got a pretty good view on property right now, at least we're a month into it right now. We'll see what happens in the May and June renewals. We've got a good eye towards that. For the rest of the year, we just don't have that much property stress.

Got it. And then my follow-up, I noticed in the CFO commentary that the the multiples that you list for token acquisitions, the lower end of that range came down a bit. So I was curious maybe if you could add a bit more color of what you're seeing in the market on multiples and kind of why you think that is.

Yeah, that's just what we're seeing right now. I think the term sheets that we've got in the hopper are recognizing that the multiples are coming down a little bit. So, yeah, we did put that on page three of the CFO commentary, and I made mention of it when I was wrapping up on cash. So, yes, you're reading that the right way. And the why? Look at our stock price.

Our multiple's down. Pretty simple. We're not here to dilute our shareholders.

Thank you. And our next question comes from the line of David Motamadden from Ebercore ISI. Please proceed with your question.

Hey, thanks. Just one question on the, I believe, Pat, you had talked about insurance rates still contributing to growth in the quarter, but just to a lesser extent. You guys in the past, you guys have broken out some of the different components of organic between net new and then price and exposure growth. So just wondering if you could unpack that.

uh maybe within this quarter and how you're thinking about that uh within the the outlook uh for the the five and a half for the full year listen i think the way to look at it right now is new business will exceed lost business customers will opt in which will come through as rate and exposure growth you know as exposures grow our customers business so let's say let's say it's a six percent year Well, we're probably in a period right now we're going to get net, net, net from rate 1, 1.5%. When you think about new business forward thrust, we'll probably get 2.5%. And then you're probably going to get exposure growth in there of another 0.5%, something like that. I think that might add up. So I'm not saying it's a third, a third, a third. I think that rate might be on the lowest end of that growth piece. So it's going to be net new business wins. And then our clients' exposure units growth and our clients opting in and buying more insurance. And then rate will be what it is.

Got it. Thanks. Sorry about that. And then just on the property pricing, maybe just thinking about the down seven for this or the down seven RPC price. If that were to get down to like, let's say, down 10 or 11, how could you help sensitize the organic growth to that sort of RPC movement?

All right. I'd have to think about that here a second and do the mental math. It might put a point of strain overall for a full year on it, something like that. But that might have to go to closer to 12 or 13 percent. It might almost have to be a double on that. Remember, a lot of our property also is done on a fee, some of our big property schedules, so that mitigates that a little bit. That's why the impact of it, the floor completely falling out of it from what we can see right now, it may be a point for the full year.

And rates are approaching a pretty low level right now. In some instances, we're seeing rates approaching 2017 pricing. So I don't think there's a structural big-time jump further beyond that. Could be.

And, again, just rates are one thing. But remember, our revenues are based on exposures, opting in, growing risk profiles. You know, casually is still tough. I know your question had it about property. But it's not just rates for us. It is highly sensitive also to exposures, which are growing right now.

Yep. Nope. Got it. Makes sense. Thank you.

Thank you. And our next question comes from the line of Meyer Shields with KBW. Please receive with your question.

Hi, this is Dean for me. Thanks for taking my question. My first question is on the yes. You call out the data center and AI-related infrastructure as the fastest growing part of the EIS market. Could you kind of help us size kind of what percentage of the submission today is kind of related to that and going forward?

All right, as a percentage, you know, it's a very small item. It's not anecdotal, but it is also illustrative that the specialty market comes in five different types of buckets. So you've got to think about these as a headwind in that, as a tailwind in that vertical that as these things, you know, come online, they're going to have to go to the specialty and E&S market in order to get that cover. In terms of what we're doing on it, boy, we've got a terrific practice in that. I think that the way we're coming together, the way we've got a bespoke model that brings the right experts for the various covers that go along with the data center is pretty remarkable.

And let's not get it wrong. I mean, there's great growth opportunities for us across the whole data center effort. And as Doug said, the E&S market is responding to that. It takes world markets to complete those. It takes great expertise, which we have. But as a percentage of the overall market, this is not earth-shattering.

OK, gotcha. Very helpful. My second question is on the Middle East conflict. I think you flagged the significant reprising and more selective capacity deployment in the Marine War, political violence, terror, and et cetera. For Gallagher specifically, is this a net organic tailwind given your London specialty and reinsurance positioning?

Yes, it is. And we've got to be very sensitive about that. First of all, just because low rates are there and the cover is available doesn't mean ships are sailing. You've got a very big caution light on making sure that crews are safe and shippers are not necessarily going to take the risk. But the market is available. It takes a lot of skill and a lot of diligence to put these together. But in the end, when they bind, yes, they're a net positive.

Got it. And just one quick follow-up. Does the capacity constrain clear placement difficulties that limit your ability to capture that?

No, not at the present time.

Okay. Thank you so much.

Thank you.

Thank you. And our next question comes from the line of Yaron Anar from Lizuho. Please proceed with your question.

Thank you. Good afternoon or good evening. One question for me. The assured partners estimates, I see revenues down a little bit again and margins up a tad more than that. Is that the same real estate moves that we had talked about in the March 17th Uh, investor meeting, or is there something else driving this?

All right. Sorry. That's a great question. First of all, remember those revenue numbers are a midpoint of our range. They do move around a little bit as we put them onto our system because we get deeper insights to the source of revenues. For instance, last quarter, we're going to have some netting and the old accounting uninsured partners. Sometimes they put a Cobra, some branches would put a co-broker as an expense. versus a contra revenue like we do, so that will cause that number to move around. It did move, what, $10 million this quarter on an $800-some million estimate, so it's a 1% kind of variance. The reason why this isn't an issue for us is that we purchased cash flow, and that's the great thing about the Assured Partners acquisition. There was no questions in their cash flows. The gross up of the revenues and expenses in some branches and the netting in other branches was irrelevant to us because that's why you see the EBITDA estimates holding right up to what we're talking about. We purchased that cash flow, we call it EBITDA, and it's delivered right where it be. There's going to be a percentage point bounce around a little bit on the revenue numbers as we completely sort out the netting of co-broker revenues branch by branch. And we're going to put a ton of branches up just this last weekend, and I think we're in terrific shape of getting that rolled onto our books in the next 15 months.

Got it. And those bounces between the line items, that will no longer be the case once the business rolls over into organic?

That's right. I mean, once we have a better insight into whether these numbers are coming to us gross or not, remember, they're all on individual agency systems. You know, when you do it on a client-by-client basis, you'll see whether or not there's a co-broker number going through the operating expense. And again, cash flows are the same. It's just the accounting. Right.

Thank you.

All right. Thanks. Thanks, Jared.

Thank you. And our next question comes from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Yeah, thanks. Good afternoon. Hey, Mark. Hello. A number of your competitors or a couple of your competitors have talked about challenges with new business, and it sounds like you're seeing things go pretty well. Is there any reason why, say, at this point in the cycle with property down and maybe a little more pressure on casualty perhaps. Why would new business be more difficult? And again, just from a kind of a broad, cyclical perspective or anything else that might be contributing to that.

So, Mark, we look at that closely. And a couple of things you might remember from discussions in the past. We have found over the last few years that that if we digitize a relationship with a client, it will actually increase our retention by a full point. Now that means it takes it from something like 94.5 to 95.5. I would contend that that's pretty close to renewing 100% of eligible. Not measured, not for sure, but darn close. Now those same tools are increasing our hit ratio. So I can tell you that if we take our Gallagher Drive product out in a prospect call, When I started selling 50 years ago, my hit ratio was about 32%. Before we got our tools going over the last decade, our hit ratio was about 32%, so it was all about getting at bats. With our tools now, we know this statistically, we're approaching 45% hit ratios when, in fact, we use the tools. And we have a number of them. It's not just Gallagher Drive. This week at RIMS, we'll be announcing Blueprint, which is all about improving The risk and insurability of our clients making their profile better. Our reinsurance people have got a workbench product that uses AI to show clients all kinds of different approaches, et cetera, et cetera. These tools, we're spending hundreds of millions of dollars, and they're really getting traction. And I think that is a differentiator. It's a differentiator, especially when you remember that 90% of the time when we go out to compete, We're competing with somebody substantially smaller than we are. And they all walk in and go, well, we've got AI. Look at our chat GPT. That's not the point. Let us just show you what we do with your risk profile, which we can now categorize numerically. It says, as you exist today, you score on our profile 65. That's not great. But if you work with us on loss control, on improving your risk profile, on the things you need to do, we can take that, we think, to 87. Now, that translates directly to an improved position in the marketplace, better pricing, which, frankly, today is easier to get, and bigger orders. So our hit ratio is increasing. We've got a lot of at-bats, and I feel really good about our new business.

Yeah, excellent. Is there any kind of structural or cyclical reason why, you know, putting your advantages to the side, it might be harder to sign up new business in this kind of environment? Since prices are going down, it's harder to tempt people away or easier, perhaps, because you can offer lower pricing.

No, I think, frankly, it's interesting. I've said before, the brokerage business is a tough business. You've got to go out and convince somebody to leave somebody they're happy with. And that's difficult. And it's a very strong relationship business. The reason they're with people is they like them and they trust them. We are trusted advisors. So we have to go and make a very strong case for the fact that they benefit their shareholders, most of the time their family, by making a move to Gallagher. And we're just getting stronger and stronger at that. So it's not easier for sure when there's a softer market because there's less pain. But at the same time, I think we've got confidence in the step of our producers that if they can get a shot at something, they've got a pretty darn good chance of righting it.

Very good. Thank you.

Thanks, Mark. Operator, I think that's our last question, so let me just make a few comments here to wrap up. Everyone that's on the call, thank you for joining us this afternoon. As you can tell, I remain extremely confident in where Gallagher is headed. Our strategy is consistent, our execution is strong, and our culture continues to differentiate us. To more than the 72,000 colleagues around the world, thank you. We've got a great quarter. Your talent and dedication are what makes this company great. That is the Gallagher way. Thank all of you for being on and have a great evening.

Thank you. And with that, ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines at this time and have a wonderful rest of your day.