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.