Arthur J. Gallagher & Co.

Good afternoon and welcome to Arthur J. Gallagher & Co.'s second 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 meaning 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 can cause actual results to differ materially Please refer to the information concerning forward-looking statements and risk factors sections contained in the company's most recent 10-K, 10-Q, and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of the non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the investor relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Good afternoon and thank you for joining us for our second quarter 26 earnings call. On the call with me today is Doug Howell, our CFO and other members of the management team. Before we get into the quarter, I want to take a moment to recognize the passing of Dave Johnson, a valued member of our board of directors. Dave helped guide Gallagher with wisdom, integrity, and sound judgment, and he cared deeply about our company, our values, and our people. On behalf of our board, our leadership team, and all of our colleagues, we extend our deepest condolences to Dave's family and loved ones. He will be greatly missed. And knowing Dave and the pride he took in this company, I believe he'd be very proud of what our team accomplished this quarter. Our team's disciplined execution delivered another excellent quarter, reflecting the continued momentum across our business. For our combined brokerage and risk management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions, delivered total revenue growth of 24% in the second quarter. Organic growth was 6%, reflecting continued strength across each of our businesses. And we continue to generate excellent profits. This quarter marks 25 consecutive quarters of double-digit adjusted EBITDA growth and another quarter of solid underlying margin expansion. Doug will break that down for you in a few minutes. On a segment basis, brokerage revenues were up 26%, of which organic was 5%. We saw strong results from insured partners and growth across retail, PC, wholesale, reinsurance, and benefits. Nearly a year into the Assured Partners combination, the business is performing well, retention remains strong, and the teams are working great together. Our risk management segment, Gallagher Bassett, posted revenue growth of 16%, which includes organic of 12%, driven by excellent new business and strong client retention. Now I'll again touch on the four strategic pillars that have guided Gallagher's long-term growth for decades, growing organically, Going through mergers and acquisitions, improving our productivity and quality, and maintaining our culture. First, organic growth. Our client retention remains strong, new business is excellent, and our clients' underlying business activity continues to be positive. Insurance rates continue to contribute to growth, but less than they have over the past several years. In this environment, only about one point of our organic growth is tied to rates. The bigger drivers continue to be new business, strong retention, We are also benefiting from activity across construction, infrastructure, energy, and data centers. These areas create new and more complex client needs, where clients require more advice, broader capabilities, and deeper expertise, and that plays directly into Gallagher's advisory strengths. Overall, we continue to view the global PC market as segmented. Carriers are looking to grow where they are earning acceptable returns and remain disciplined where underwriting margins require support. Property continues to ease, especially on larger and cat-exposed risks. Small and middle market accounts remain more stable. Casualty remains firmer given lost cost trends and underwriting discipline. Good loss experience accounts can typically see some premium relief, while accounts with poor experience are seeing increases. Let me spend a few minutes breaking down this by business. Within our global retail PC business, broad market themes remained consistent with last quarter. And as expected, the softness in property was more pronounced in the second quarter, given the seasonally heavier renewal mix. In the second quarter, we saw the following in renewal premium changes by line of business. Property was down 10%. Casualty lines, which included general liability, commercial auto, and umbrella, were up 3% overall. Professional lines, including D&O and cyber, were up 1%. Workers' comp up 2%, personal lines up 3%, and package up 2%. Excluding property, renewal premium changes increased 3% in the quarter, with higher increases in the U.S. versus international markets. It's important to remember that premium changes in Gallagher's revenues do not move one for one. As property pricing eases, many clients are opting in and using the savings to buy back coverage, increase limits, or improve structure after several years of opting out and making difficult trade-offs. And in this environment, the value of our advice, advocacy, and market access becomes even more important. Within U.S. excess and surplus, we continue to see a bifurcated market. Property, especially cat exposed, is the most competitive area right now. That reflects a pricing reset after several years of a very strong hard market, not a reduction in demand. Submissions and policy counts remain healthy, and E&S continues to be an important solution for complex property risks. Casualty remains firmer, renewal premiums are up mid-single digits, and demand remains steady across general liability, excess liability, and umbrella. At its core, the E&S market is driven by complexity. AI-related infrastructure, including data centers, difficult liability risks, and other emerging specialty exposures, often do not fit neatly in admitted markets. That creates a multi-year opportunity for our wholesale teams, because clients and carriers need expertise, structure, and speed, as well as market access. Turning to London's specialty, conditions are similar to what we are seeing in the U.S. E&S markets. North American cat exposed property remains competitive, while D&O, professional lines, financial institutions, and cyber are more stable than they were earlier in the cycle. The clear exception is war-related risk. Marine, aviation, and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment of capacity. Coverage remains available, but it requires careful structure and coordinated execution across markets. That is where our London, U.S. and international teams work especially well together. We are helping clients navigate increasingly dynamic markets. Moving to reinsurance, the market remains well capitalized and renewal activity continues to reflect ample capacity. In the second quarter, we saw strong growth across lines and across geographies with excellent new business helping offset rate headwinds. That performance reflects broad-based contributions from areas including facultative, Casualty, and Capital Advisory, demonstrating that Gallagher-Ree's growth is not solely dependent on the pricing cycle. Conditions at the 4-1 renewals were generally consistent with those we saw at 1-1, with somewhat greater downward pricing pressure on the Japan-specific contracts. At the mid-year renewals, including 6-1, property cap pricing moved lower again, reflecting abundant capacity, demand remained healthy, and many clients use the savings to improve structure by additional limits or better manage earnings volatility. Casualty remains more disciplined, particularly for U.S.-focused risks given lost cost trends and prior year development. Even in the softer reinsurance markets, clients need more than price. They need advice, structure, analytics and access to capital. That plays directly into Gallagher-Reed's strength. Moving to employee benefits. We're seeing steady demand from employers across health, retirement, benefits, executive benefits, life, and HR solutions. Our clients remain focused on talent attraction and retention while managing pressure from increased medical utilization, advanced treatments, and escalating prescription drug costs. That is why they value our advice, advocacy, creative plan design, and cost management strategies. all of which continue to support demand and retention across our benefits business. Moving on to Gallagher Bassett, GB had another terrific quarter driven by excellent new business and strong client retention. The team continues to broaden its capabilities and put data, AI, and machine learning to work in very practical ways to improve service, drive better claims outcomes, and create further operating efficiencies. These investments continue to strengthen GB's competitive positions. And with good momentum and a healthy pipeline of opportunities, GB is well positioned for another strong year in 2026. Now let me provide some comments on our view of the economy. The U.S. labor market remains healthy, 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, and our proprietary data from audits, endorsements, and cancellations showed solid business activity throughout the second quarter and through yesterday. Our data continues to show 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 our organic growth prospects, property pricing is moderating, and that's well understood. But property is only one part of our very large and very diverse portfolio. Client retention reigns strong, new business activity is excellent, client exposure growth is positive. We are also seeing clients opt back into coverage as pricing moderates, and our growth is broad-based across geographies, client sizes, and products. Most importantly, clients continue to need our advice, advocacy, analytics, and market access. As risk becomes more complex, the value of Gallagher's expertise becomes more important, not less. That is why we remain confident in the durability of our results and in our 2026 full year organic growth outlook of 6%. Now shifting to our second strategic pillar, mergers and acquisitions. During the second quarter, we completed seven new tuck-in acquisitions representing around $63 million of estimated annualized revenue. Looking at our pipeline, we have over 30 term sheets signed or being prepared. representing around $500 million of annualized revenues. Our acquisition strategy continues to be a powerful driver of Gallagher's growth. Since last April, we've completed 38 acquisitions, including Woodruff Sawyer and Assured Partners, and each one strengthens Gallagher in its own way, adding talent, capabilities, relationships, and new growth opportunities. Assured Partners is one example of that strategy at work. The business is performing very well, Retention is strong and the teams are already better together. We're collaborating on opportunities, sharing capabilities, putting Gallagher's tools, data, analytics, and expertise to work across the entire combined team. That is good for clients, good for colleagues, and a strong message to other high-quality firms thinking about their future. 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. It would be terrific if they chose to partner with Gallagher. Next, let me move to our third strategic pillar, continuously improving our productivity and quality. For more than two decades, we've been improving productivity and quality by standardizing workflows, building our centers of excellence, and bringing more of our data together around the world. AI, digitization, and automation are simply the next tools in that effort, and we are putting them to work across the broader Gallagher team. And the point is simple. These tools make our professionals faster, better informed, and more productive, but they do not replace judgment, advocacy, relationships, or accountability to our clients. Over time, they should help us serve clients better, further improve our quality, help us win new business, and keep us growing the right way. Let me wrap up with our fourth strategic pillar, our culture. Gallagher is a growth culture company. Our culture helps us attract talent, welcome merger partners, and execute consistently across a large and diverse global company. And culture is what makes our investments in talent, technology, data, and AI work. Our people are willing to learn new tools and new ways of working when these tools help them serve clients better, improve quality, and move faster. That is what helps turn investment into execution. We have the scale. We have the data. We have the operating discipline. And because of our culture, our people put those capabilities to work every day. That drives productivity, improves quality, helps retention, helps new business, and over time, it shows up in our financial performance. So when we talk about Gallagher's performance, our culture is not separate from the numbers, it's embedded in them. Okay, another 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 two minutes flipping through our earnings release and give some quick highlights. Then I'll spend about five minutes on the CFO commentary document that we post on our website. Then I'll close with a minute on cash, M&A, and capital management. Overall punchline, which you probably already dug out, we had a great quarter, right in line, and in many cases better than we had forecasted in our June investor day. One housekeeping reminder before I jump in. In the first three quarters of 25, our brokerage segment earned investment income on the funds we were holding to buy Assured Partners. Second quarter 25 revenues and EBITDA were benefited by investment income of $144 million. That's 42 cents per share. And as a reminder, for the first quarter 25, that was $143 million or 41 cents and third quarter 25, Results had $76 million or $0.22 of income. This has caused, and will again cause in the third quarter, a lot of comparability noise. Fortunately, this headline headache will be behind us by the fourth quarter. Okay, let's go to the earnings release, page one. Removing from prior the impact of investment income on AP funds, as I just noted, you've computed adjusted revenues, adjusted EBITDA, and adjusted EPS each up over 30% for our combined brokerage and risk management segments. That's an incredible quarter and demonstrates our four strategic pillars are delivering terrific shareholder value. Next, when you combine brokerage organic at 5% from page three and risk management organic at 12% from page five, you'll get to that 6% organic growth that Pat just cited. This is excellent execution right in line with our June IRD forecast. One other note, brokerage posted excellent combined supplemental and contingent growth and risk management had strong performance bonus revenues. Both reflect the value we bring to our clients and capital providers. Moving to page four and top of page five. As we've been discussing for nearly a year, the current quarter percentages at the bottom of these tables are really not all that helpful when compared to the prior year because of the interest income we earned in 25 on the AP funds. That really clouds comparability. So it's better for me to defer comments on our brokerage EBITDA margin until I get to page seven of the CFO commentary. That said, 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 IR day forecast. So moving to page six, no impact on these numbers from interest from holding AP funds. Risk management showed continued operational efficiencies leading to an adjusted EBITDA margin up 140 basis points to 22.3%. That plus excellent revenue growth of 14% led to 22% growth in our adjusted EBITDA. Looking forward, we see third quarter and full year 26 adjusted EBITDA margins north of 22%. Paul Minehart, Flipping to page seven, corporate segment adjusted results in total were a bit better than what we provided during our June investor day. That's mostly due to a small movement in unrealized FX. And as I've said before, this is a non-cash item, but it does move our corporate results around a bit as the foreign exchange rates bounce around. Last on page eight, About halfway down, we repurchased about 850,000 shares for approximately $170 million in the second quarter. That brings repurchases to about $480 million through June 30. Okay, let's now go to the CFO commentary document. Starting on page 3, most items here are very close to what we provided in June. A couple call-offs. The FX impact has been up by the latest exchange rates. and we have updated our non-cash earn-out expense estimate to reflect a couple of earn-out payments made in the quarter. So just double check these items as you consider that these are considered in your models. Moving to page four, organic growth by business. Here are the punchlines. First, we saw another solid quarter of organic growth across each business and geography. Apex, specialty and risk management, that's Gallagher Bassett, each had a really strong finish and all others right in line with our forecast provided during our June IR day. Looking forward, we've added our third quarter organic growth outlook and updated our full year. Percentages reflect the midpoint of our estimates and reflect similar new business retention, client business activity and economic conditions that Pat just provided, as well as our view of where rates might be. For full year, we brought up APAC and Gallagher Bassett a bit due to their strong second quarter, and reinsurance rounded down really less than a point. So not much new news from our June IR Day outlook. We are still comfortable with our full year total company organic outlet at 6%, brokerage at 5.5%, and risk management at 9%. We post that, and 26 will be another year of excellent organic growth. Okay, let's move to the top of page five, the investment income table. A couple quick comments here. First, on the left side, this is where you see the interest earned in 25 on the funds we were holding to buy AP that I mentioned earlier. And second, our 26 forecasts reflect current FX rates, changes in fiduciary cash balances, and assumes no rate cuts this year. Staying on page five, but shifting down to the rollover revenue table, which excludes Assured Partners. Three comments here. First, the second quarter 26 column subtotal of $66 million for brokerage came in pretty close to our estimates that we provided in June. Second, please make sure you adjust the prior year revenues for the amount noted in the divestiture and other line before you apply your organic growth assumptions. Then third, the pinkish columns to the right reflect All 2026 revenues for M&A closed through yesterday. But remember, you'll also need to make a pick for future M&A. Moving to page six, this is information on Assured Partners. Five comments here. First, Assured Partners second quarter EBITDA of $222 million came in at our June investor day estimates and we remain confident in our full year 26 outlook. That's really great performance. Second, 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 revenue netting like we have seen over the last couple quarters. Third, my standard reminder that for third and fourth quarters 26, you should only model the delta between the future estimates in pink and the 25 numbers in blue. Otherwise, for example, you'd be double counting about $500 million of revenue in the third quarter. Fourth, the footnote reminds you that the 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 these. And fifth, importantly, you'll read in the footnote, we still see annualized run rate synergies of $160 million by the end of 26 and then up to $325 million by early 28. Now, one heads up here. This table does not include synergies. Those synergies are shown in the margin walk table on page 7 for 26, so don't double count. So moving on to page seven, the brokerage segment margin bridge. This table makes it very easy to see all the components that influence our margin change period over period. So here's some punchline. AP is delivering margin lift. Our productivity and quality efforts again delivered another terrific quarter of underlying margin expansion of 50 basis points. Looking forward, you'll see to the far right, We're still forecasting full year 26 underlying margin expansion of 40 to 60 basis points. All of this is right in line for what we provided our June investor day and we deliver on that and it would mean another outstanding year of margin expansion. Moving to page 8, our corporate segment. You'll see that our adjusted second quarter as well as our outlook for the rest of the year are very close to what we presented in June. So there's really no new news here. Also a reminder, the upper right box is where you find the impact of FX that I mentioned earlier. And then the lower box shows you the $3.4 billion of future tax savings from tax credits and tax deductible intangible amortization. That means your models should reflect cash taxes paid at about 10% of EBITDA and you'll get close. These credits and deductible amortization shields create a nice cash flow sweetener to fund future M&A. All right, let me wrap up with a few comments on cash, capital management, and M&A funding. When I look forward, available cash on hand, expected free cash flows, and future investment-grade borrowings, we estimate close to $10 billion of capacity to deploy over the next two years. We still favor M&A, but it might also do share repurchases opportunistically. Currently, our M&A pipeline remains strong and is full of targets at attractive multiples. Staying consistent in our approach and disciplined in our pricing creates immediate shareholder value through a nice arbitrage. It also builds a bigger team that brings value to our clients and makes our offerings compelling to our prospects, and that fuels our long-term growth. That creates long-term shareholder value. Okay, those are my comments. Another fantastic quarter and continued expectation for another terrific year. Back to you, Pat.