Arthur J. Gallagher 2026 Q2 Earnings Call

Good afternoon, and thank you for joining us for our second quarter 2026 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. 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. We continue to generate excellent profits. This quarter marks 25 consecutive quarters of double-digit adjusted EBITAC 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 AssuredPartners and growth across retail, PC, wholesale, reinsurance, and benefits. Nearly a year into the AssuredPartners 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. I'll again touch on the four strategic pillars that have guided Gallagher's long-term growth for decades, growing organically, growing 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 1 point of our organic growth is tied to rates. The bigger drivers continue to be new business, strong retention, exposure growth, and the diversity of our model across PC, benefits, reinsurance, and claims. We're 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, that plays directly into Gallagher's advisory strength. 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 loss 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 remain consistent with last quarter. 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 and 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. 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 specialty, conditions are similar to what we are seeing in the U.S. E&S market. 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 Re'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 cat pricing moved lower again, reflecting abundant capacity, demand remained healthy, and many clients used the savings to improve structure by additional limits or better manage earnings volatility. Casualty remains more disciplined, particularly for U.S.-focused risks, given loss cost trends and prior year development. Even in a softer reinsurance markets, clients need more than price. They need advice, structure, analytics, and access to capital. That plays directly into Gallagher Re'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 position. 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. To wrap up my thoughts on our organic growth prospects, property pricing is moderating, and that's well understood. Property is only one part of our very large and very diverse portfolio. Client retention remains strong. New business activity is excellent. Client exposure growth is positive.

We are also seeing clients opt back into coverage as pricing moderates, 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 7 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 AssuredPartners.

Each one strengthens Gallagher in its own way, adding talent, capabilities, relationships, and new growth opportunities. AssuredPartners is 1 example of that strategy at work. The business is performing very well. Retention is strong, 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, and it'd be terrific if they chose to partner with Gallagher. Next, let me move to our third strategic pillar, continuously improving our productivity and quality.