Good afternoon, and welcome to Arthur J. Gallagher & Co.'s second quarter of 2023 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 could cause actual results to differ materially. Please refer 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, President, and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin. Thank you very much. Good afternoon, everyone. Thank you for joining us for our second quarter 2023 earnings call. On the call today is Doug Howell, our CFO, as well as the heads of our operating divisions. We had a fantastic second quarter. For our combined brokerage and risk management segments, we posted 20% revenue growth, 10.8% organic growth. Recall, we don't include interest income in our organic. If we did, our headline number would be 13.4% and over 14% if you levelize for last year's large life product sale. GAAP earnings per share of $1.48, adjusted earnings per share of $2.28, up 21% year-over-year. Reported net earnings margin of 13.6%, adjusted EBITDAC margin of 30.4%, up 52 basis points. We also completed 15 mergers, totaling $349 million of estimated annualized revenue. We had a terrific month to finish the quarter that fueled the upside versus our June IR Day. I could not be more pleased with our second quarter performance and how our teams all around the globe continue to deliver incredible value to our clients. On a segment basis, let me give you some more detail on our second quarter performance, starting with our brokerage segment. Reported revenue growth was 20%. Organic was 9.7% or 12.3% if we include interest income, and about 13% when levelizing for the large life product sale. Acquisition rollover revenues were $151 million. Adjusted EBITDAC growth was 23%, we posted adjusted EBITDAC margin expansion of about 50 basis points. Let me walk you around the world and provide some more detailed commentary on our brokerage organic. Again, the following figures do not include interest income. Starting with our retail brokerage operations, our U.S. PC business posted 13% organic. New business production was up year-over-year, while retention was similar to last year's second quarter. Our U.K. PC business posted 11% organic due to strong new business production. Canada was up 6% organically, reflecting solid new business, similar retention versus last year, and continued, but somewhat more modest renewal premium increases. Rounding out the retail PC business, our combined operations in Australia and New Zealand posted more than 10% organic. Core new business wins were excellent, and renewal premium increases were ahead of second quarter 2022 levels. Our global employee benefit brokerage and consulting business posted organic of about 2%. That includes a three-point headwind from last year's life product sale. Excluding the tough compare, organic would have been about 5%, with core health and welfare up low single digits, Many of our consulting practice groups showed continued strength. Shifting to our reinsurance, wholesale, and specialty businesses, Gallagher Re posted 11% organic, another outstanding quarter by the team, building upon their excellent first quarter results. Risk Placement Services, our US wholesale operations, posted organic of 10%. This includes 19% growth in open brokerage and about 6% organic in our MGA programs and binding businesses. Finally, U.K. Specialty posted organic of 19%, benefiting from excellent new business production and fantastic retention and a firm rate environment. Next, let me provide some thoughts on the PC insurance pricing environment, starting with the primary insurance market. Global second quarter renewal premiums, which include both rate and exposure changes, were up 12%. That's ahead of the 8%-10% renewal premium change we were reporting throughout 2022 in the first quarter of 2023. Renewal premium increases were made broad-based and are up across all of our major geographies. We're also seeing increases across most product lines. Property is up more than 20%. General liability is up about 8%. Workers' comp is up about 3%. Umbrella and package are up about 11%. Most lines are trending similar or higher relative to previous quarters, with two exceptions. First is public company D&O, where renewal premiums are lower versus last year, and second, cyber, which is flat to down slightly year-over-year. To put this all in perspective, these two lines combined represent around 5% of our year-to-date brokerage revenues, and thus don't have much of an impact. I believe the market continues to be rational, still pushing for a rate where it's needed to generate an acceptable underwriting profit. Remember, though, our job as brokers is to help our clients find the best coverage while mitigating price increases to ensure their risk management programs fit their budgets. Not all these renewal premium increases show up in our organic. Shifting to the reinsurance market. Overall, the June and July reinsurance renewals resulted in similar outcomes to what we saw during January renewals, with most global reinsurance lines continuing to harden. Property continues to experience the most hardening, especially cat-exposed treaties. Within the U.S., Florida property cat renewals were more orderly than January due to an early start and well-defined reinsurer appetites. Regardless, price increases were in the 25%-40% range, causing many cedants to increase their retentions. While property capacity isn't abundant, we ultimately were able to place risk for most all of our cedants. As for casualty reinsurance renewals, the second quarter showed more stable supply versus demand dynamics, resulting in price increases based on product or risk-specific factors. Looking forward, carriers are likely to continue their cautious underwriting posture, given the frequency and severity of weather events, replacement cost increases, and social inflation, all of which can impact current and prior accident year profitability. Add to that, rising insurance costs, and it's easy to make the case for pricing increases on most lines to continue here in 2023 and perhaps throughout 2024. Despite these and other inflationary cost pressures, our customers' business activity remains strong. During the second quarter, our daily indications of client business showed positive endorsements and audits. These positive policy adjustments have continued thus far in July. At the same time, labor market imbalances remain. Recent data shows the U.S. unemployment rate declining, continued growth in non-farm payrolls, and a very wide gap between the amount of job openings and the number of people unemployed and looking for work. Medical cost trends are on the rise. We anticipate these costs to accelerate into 2024 due to increased costs of services, more frequent high dollar claims, and the impact of new therapies and specialty medications. I see demand for our HR consulting and other benefits offerings remaining strong. When I bring this all together, as we sit here today, we are more confident with full year brokerage organic in the 8%-9% range, and with an excellent second quarter in the books, more towards the upper end of that range. Posting that would be another fantastic year. Moving on to mergers and acquisitions. We had a very active second quarter. In addition to the Buck acquisition, which I will discuss in a moment, we completed 14 new tuck-in brokerage mergers. Combined, these 15 mergers represent about $349 million of estimated annualized revenues. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals. Moving to the Buck merger, which was completed in early April. Our integration efforts have begun. The combined business is off to a great start. While it's still early, I'm extremely pleased with how the teams are working together and excited about our combined prospects. Looking ahead, we have a very strong merger pipeline, including nearly 55 term sheets signed or being prepared, representing more than $700 million of annualized revenue. We know that not all of these will ultimately close. We believe we will get our fair share. Moving on to our risk management segment, Gallagher Bassett. Second quarter organic growth was 18.1% ahead of our expectations due to rising claim counts and continued growth from recent new business wins. These wins have been broad-based and across all of various client segments, including large corporate enterprises, public entities, insurance carriers, and captives. Growth in each of our client verticals is great affirmation in our ability to tailor our client offerings, utilize industry-leading technology, and ultimately deliver superior outcomes for clients across the globe. second quarter adjusted EBITDAC margin of 19.4% was very strong and at that, the upper end of our June expectation. Looking forward, we see full year 2022 organic around 13% and adjusted EBITDAC margins pushing 20%. That would be another outstanding year. I'll conclude with some comments regarding our bedrock culture. This past quarter, I was on the road for a month, visiting employees around the globe, traveling to New Zealand, Ireland, the U.K., and the Czech Republic. I can say that our culture is thriving, which makes me incredibly proud. Some of those conversations included the more than 500 young people in our 58th class of the Gallagher Summer Internship. This rigorous two-month program is an essential investment in our future, ensuring our unique culture remains strong for years to come. As we continue welcoming new colleagues and merger partners into the Gallagher fold, I'm confident that each new addition will uphold the expertise, excellence, and ethical conduct that make Gallagher the name so trusted worldwide. That is the Gallagher way. All right, I'll stop now and turn it over to Doug. Doug? Thanks, Pat, and hello, everyone. What a terrific quarter on all measures! Today, I'll walk through organic and margins by segment, including how we see the remainder of the year playing out. I'll provide some comments on our typical modeling helpers using the CFO commentary document that we post on our website, and I'll conclude my prepared remarks with a few comments on cash, M&A capacity, and capital management. Let's flip to page 3 of the earnings release. All-in brokerage organic of 9.7%. That'd be 12.3% if we include interest income, and a little over 13% when further levelizing for last year's large life product sale. That's a bit better than what we forecasted at our IR Day in June, due to a fantastic finish of the quarter across all of our divisions, especially US Retail and London Specialty. You'll also see that contingents were up more than 20% organically. Probably a better way to look at it is in combination with supplementals, because contracts can flip from time to time. Together, up 12% is much more in line with our base commission and fee organic growth. No matter which way you look at it, a fantastic organic growth quarter by the team. Looking forward, we see headline brokerage organic around 9% for third quarter and about 8% for fourth quarter. It's important to recall that fourth quarter will have a tough compare because in Q4 2022, we booked a change in estimate related to our 606 deferred revenue accounting. Controlling for that, fourth quarter 2023 organic would be towards 9%. We highlighted this matter last year and again at our June IR Day, there's nothing new here. It's just a reminder as you update your models. With all that said, we remain bullish on our organic prospects for the second half. Accordingly, we now believe full-year brokerage organic is looking like at the higher end of that 8%-9% range. These percentages do not include interest income. Flipping to page 5 of the earnings release to the brokerage segment adjusted EBITDA table. We posted adjusted EBITDA margin of 32.1% for the quarter. That's up about 50 basis points over second quarter 2022's FX adjusted margin. That came in better than our June IR Day expectation of expanding 10 basis points, mostly due to the incremental organic growth. Looking at it like a bridge from Q2 2022, organic gave us 100 basis points of expansion. Incremental interest income gave us 90 basis points of margin expansion. The impact roll-in of M&A, which is mostly Buck, uses about 80 basis points, and then we also made some incremental technology investments, call that around $7 million, and some continued inflation on T&E, call that about $5 million, which in total used about 60 basis points. Follow that bridge, the math gets you close to that 50 basis points of FX adjusted expansion in the quarter. As for our margin outlook, we expect about 40 to 50 basis points of expansion for each of the next two quarters. For the year, we are a bit more optimistic than our April and June views and now see full-year margin expansion of 30 to 40 basis points, or that would be 70 to 90 basis points, levelizing for the roll-in impact of Buck. Again, both those percentages are increases relative to prior year FX adjusted margins. We talked about that during our June IR Day when we provided a vignette on how to model margins. Let me give you 2022 margins recomputed at current FX levels for your starting points. In Q3, Q3 2022, EBITDA margins would have been around 31.7% versus the 32.3% we reported. As for fourth quarter 2022, not nearly as much impact. Call it around 31.3%. Now if you move to the risk management segment and the organic table at the bottom of page 5 of the earnings release. Also had an excellent finish to the second quarter, 18.1% organic growth. As Pat mentioned, we continue to benefit from new business wins for the second half of 2022. Looking forward, we see organic in the third quarter around 14% and fourth quarter about 10%, which reflects the lapping of last year's larger new business wins. As for margins, when you flip to page 6, and the adjusted margin, EBITDAC table, risk management posted 19.4%. That was on the upper end of our 19%-19.5% June expectation. Looking forward, we see margins above 19.5% in each of the last two quarters of 2023. Full-year double-digit organic and margins approaching 20%. That would lead to a record year for Gallagher Bassett. Let's turn to page 7 of the earnings release and the corporate segment shortcut table. In total, adjusted second quarter came in right at the midpoint of the range we provided during our June IR Day, even though we did experience a further $5 million of FX-related remeasurement headwinds. That cost us a couple pennies in the quarter. Let's move to the CFO commentary document. On page 3, you'll see most of the, of the second quarter results were in line with our June commentary. Looking ahead, you'll see that we've updated our outlook to reflect current FX rates and provide our usual modeling helpers for the second half of the year. Moving to page 4 of the CFO commentary document and our corporate segment outlook for the second half, the punchline here is not much change other than a modest tweak to corporate expense and interest in banking costs, as we've assumed a slightly higher balance on our credit line, given our robust M&A activity. On page 5 of the CFO commentary, that shows our tax credit carryforwards. As of June 30, we have about $700 million, which will be used over the next few years, and that sweetens our cash flow and helps us fund future M&A. Shifting to rollover M&A revenues on page six of the CFO commentary document, $151 million in the quarter, with Buck contributing nearly half of that. Remember, numbers in this table only include estimates for M&A closed through yesterday. You need to make a pick for future M&A, and you should also increase interest expense if you assume we borrow for a portion of the purchase price. One other call-out, and that's back at the bottom of page three of the earnings release. We did use a higher-than-normal amount of stock for tax-free exchange mergers this quarter. That can be a little lumpy, but we do like doing them. It's attractive to the sellers that are looking to defer the full tax consequence of selling their firm, and it's also attractive to us because it fully aligns our new partners with our long-term shareholders. As for future M&A, we remain very well-positioned. At June 30, available cash on hand was more than $400 million. Our cash flows are strongest in the second half of the year, and we have room for incremental borrowing, all the while maintaining our strong investment-grade ratings. We continue to see our full year 2023 M&A capacity upwards of $3 billion and another $3 billion or more in 2024 without using any equity. Another outstanding quarter by the team. From my position as CFO, sitting halfway through the year, our full year 2023 outlook on all measures continues to improve: better organic, better margins, and a more robust M&A pipeline. Bottom line, we're in great, we're in a great spot to deliver another record year of financial performance. Okay, back to you, Pat. Thanks, Doug. operator, let's go ahead and open up for questions. Thank you. The call is now open for questions. If you have a question, please pick up your handset and press star one on your telephone at this time. If you're on a speakerphone, please disable that function prior to pressing star one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star two. Again, that's star one for questions. Our first question is coming from the line of Weston Bloomer with UBS. Please receive your questions. Hi, good evening. My first question, really good, strong organic growth within brokerage and around 200 basis points of above what you had said, I guess, about a month ago. I was curious if you could expand on maybe what lines of businesses or geographies or maybe was it supplementals or contingents that drove that outperformance? I. what we can extrapolate for the back half of the year or what is- Well, I think that. one nature? Yeah, I think for extrapolating to the back half of the year, we feel that, that, our, our look towards nine and then eight, adjusted to nine for the second two quarters is probably the best way that to look at what we think for the rest of the year. The upside was due to U.S. and, and also U.K. Specialty. They just had a terrific end of June. But we're seeing it across the globe. There, there is a noticeable uptick here in June of, of success on our sales, and our retentions are good, and there's some, some positive rate move, movement in those numbers, too. Also, I would say, you know, Clients are getting pretty darn weary of a hard market, and they're looking for good advice. Where we're finding great, strong growth is in property casualty, the basic blocking and tackling, workers' comp, areas that in the United States, at least, we stand an opportunity to stand really head and shoulders above our competition, especially the little guys. Great, thanks. Second question on M&A. I believe you said 55 term sheets for $700 million in revenue. If I go back through my model, I believe that $700's the highest I've seen, maybe away from Gallagher Re. Is it- Yep. Could you maybe just expand? Is there any shift in your M&A strategy or any, like, larger deals in the pipeline? Could you maybe just expand on what you're seeing in the market more broadly as well? I think that what we're seeing is, first of all, remember, we talk about this quite often. We don't have one individual out prospecting. We've got dozens and dozens of people that have now done deals in our company. They're out constantly talking to our competitors. The more deals we do, the more friends they have in the industry that they're telling it's working well, and they're pleased to be with us. I, I think it's just a matter of straight-up blocking and tackling when it comes to the typical making cold calls, talking to people, renewing relationships we've had for years, and people getting to a point where they're, they're possibly ready to sell. Yeah, I think they see our capabilities, and I think some of the appeal of maybe selling to a PE firm, there's some concern about that, given the increase in interest rates and the borrowing costs. There's been some stress on that side of the, of the industry. So we're seeing that, that folks are really more interested in being with a strategic now than trying to sell into a PE roll-up. Got it. Thanks. Yeah, it was, it was double-digit, I think, dollar million in revenue per term. I got, I got a little excited there. Me too. Then last one, just on fiduciary. You'd highlight around 90 BPS benefit in the quarter. Is that roughly what you have baked into the back half of the year when we think about your guidance? Yeah, I think the biggest jump is here in Q2. I think in the second half of the year, you might see something like 70 basis points in the third quarter, and it'll give us maybe only 50 basis points of margin expansion in the fourth quarter, just because rates have been popping up. Great. Thank you. Thanks, Weston. The next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question. Hi, thanks. good evening. My first question, Pat, you know, I know when asked, you're typically willing to provide a little bit of an outlook on how you're seeing things, you know, more than just the current year. So based on how you think about things right now, how do you think,... you know, from a thinking of the brokerage business, from an organic growth perspective, how do you think, 2024 is shaping up? Elyse, I think it's going to look a lot like 2023. I'm not seeing any hesitation of underwriters asking for rate. I do think the cycles have shifted. When you see cyber and D&O coming down, they probably are coming down, and that's, that's reasonable. Property through the roof is, is reasonable. What we're seeing in, in inflation in terms of lawsuit, social inflation is the word I was searching for. It's very, it's very, very troubling. Then you add inflation. We've been talking about inflation on this call now for a, over 1 year. You know, you look back in the reserves and inflation, really, it tips those into a very difficult spot, and you're not going to get those healthy in 1 year. I, I feel very strong about - and I'll tell you, our insurance companies are very... Our partners are very smart about their numbers. They know where they're making money, where they're not making money, and they're telling us what they need. I don't see people backing off on that. No one's walking in saying, "The gates are wide open, let's just get volume." It, it's a reasonable market that you can get deals done at a reasonable price. Our clients actually understand inflation. They're living with it across the board, and inflation is good for a broker, honestly. I think next year looks very, very strong. Then, Doug, I know, you know, the bar was a little bit higher for the level of margin improvement this year. If 2024 looks like 2023 from an organic revenue growth perspective, would we see more margin improvement next year at the same level of organic that we saw this year? I, I guess my reaction to that is going back to, I think that you'd see some margin expansion at 6%. I don't know if you'd get it necessarily at, at 4%. I, I, I don't. I think by the time you got up to 9%, it'd be better than 50 basis points of margin expansion, and we do have one more quarter of roll-in impact of Buck that would, you know, the underlying business would be going up, but that business runs a lower margin. Depending on which question you're asking me, I would think that margin expansion in 2024 could be very similar to what we thought at the beginning of this year. Give us six points of organic, and there might be, you know, 40, 50 basis points. Give us nine, nine points of organic, you might get 75-80 out of it. Then, Pat, when you're talking about price increases, you know, are you making that comment on, like, a nominal basis? Or are you expecting that when we think about property casualty pricing, you know, over the balance of this year and in 2024, that will continue to exceed loss trend? Well, I think that's the battle, isn't it, Elyse? I mean, the carriers are very much wanting and telling us they need that. Yes, I think that would be the objective. We're finding that we can get it. I do think that they're going to look at loss trends, and they're going to try to definitely keep the rate structure moving ahead of that. One last one. Do you have some initial thoughts on what we could see from reinsurance pricing at January 1, 2024? No, it's too early for me to comment on that, Elyse. I think, you know, we just finished July, not as big a month, obviously, as January, but interesting that the pricing was still very, very firm. The market after January 1 had a chance to settle down and look at their books. Understand January 1 was a nightmare. As we said in our prepared remarks, July was a little bit more orderly, but still difficult. Give me another quarter on that one. Thank you. Thanks, Elyse. Our next question is coming from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your questions. Hey, good afternoon. Investment income, is this the new run rate? It was better than expected, or, or should we expect it to take a, a, another, you know, leg up, I guess, just, you know, rel-- you know, of course, the company's growing, too? Listen, I think the impact on our numbers, I think that it's actually what the, the change in margin from investment income was 90 basis points this quarter. We think it'll be about 70 basis points in the third and about 50 basis points of margin expansion in the fourth. To me, I would say that the actual dollar amounts that you're seeing in the second quarter are not dissimilar to the dollar amounts that you would see in third and fourth quarter. Okay. Okay. Now you guys are firing on all cylinders. I'm just trying to poke some holes here. Let's see, let's see if I can- Well, why would you do that, Mike? I mean, just, just, well, realistic. Come and get more, will you? U.K. inflation, you know, the, the, the stats look like, you know, it's, it's high and there's, you know, wage pressures and some at least a slowing GDP outlook. You know, how does your business look there, look there currently? You know, have margins been growing as much there? You know, any, you know, any comments on that? How do you say retail business is on fire? Really on fire. I give a lot of credit to the team on two areas. One, as you know, we've spent money there in terms of branding, and we did not do that for years when we were putting together our, you know, Giles, Oval, Heath, those, those firms were trading under those names. We brought those together. We started talking about ourselves as Gallagher in the, in the, in the field... our rugby partnerships there and, and the efforts that we spent on branding have paid incredible dividends. People know who we are now across the entire U.K., and our people are taking advantage of that. I just visited, I was in our London offices for a good part of June. I was in Dublin and Belfast. I can just tell you this: there's a bounce in every retailer's step. They're kicking ass, they're having fun, and they're taking names and getting more business for next quarter. Okay. Just because Elyse Greenspan asked for, I'm going to sneak in a quick one. In terms of the pricing environment, taking a kind of a step up, how much do you think is due to the reinsurance cost trying to be passed through? It sounds like you don't-- it sounds like it's not a big deal because you're saying that next year could be similar to this year, so there wouldn't be a step down. I'm curious if you think some of the momentum is coming on the reinsurance side. Let's be clear. I'm saying that we're being told by our carrier CEOs that they have to cover their increasing cost base. That starts with inflation and their past reserves, you know, if you, if you plan to rebuild a house for $1 million 2 years ago, you're not going to spend $1 million. They are, they are looking at those reserves. Secondly, they're still in the process of making sure that we get the, the values right. These values haven't been touched for a decade. They haven't needed to be touched. Now you've got a value increase, you've got exposure units growth. You add to that the, the cost of reinsurance, which is clearly a cost. They're, they're not separating it out and telling our retail clients, "Well, this part is for reinsurance." They're saying, "Look, guys, on this line of cover, we need, we need 25 points. Go get it." That'll hold as long as we have to, in fact, do that to get the deal done. Now, remember, we are scouring the mountain for the market for someone that'll do it for 10, because that's our job. Right now, there's no break in that. Thank you. Thanks, Mike. Our next question comes from the line of Greg Peters with Raymond James. Please proceed with your questions. Hey, good afternoon, Pat and Doug. Hey, Greg. Hey, I wanted to have you for a moment talk about new business. You know, you look at the organic results, you know, 10.8%. You look at renewal pricing, 12%. Well, you went through a bunch of lines, Pat, you know, where pricing was, you know, clearly double digit. So I, and you also made this comment about, you know, your clients having a budget. Just curious, you know, how much of the growth organic is rate versus exposure, existing clients versus new business, and has that balance changed at all in the last year? Let me let Doug talk about the actual numbers, because I'm, I'm more off the cuff, and, and then I'll come back in on how I see the market shaping up. Go ahead, Doug. Greg, our net new business versus lost business is up this year by two percentage points compared to where it was. Their rate is, and that's the total rate and exposure is up about 1.5 points. You can see here that Our increased new is actually up more than the impact from rate is up. Now, let me add some color to that, Greg. Number 1, we're doing a much better job, I think, of that than ever of measuring kind of this new business stuff that you're talking about. We know that our average production is actually increasing in the income, the commission income receiving on new business has moved up from, let's call it $50,000-$60,000 into closer to $175-$100,000. That's per item as we start bringing it in. We're actually finding those clients that have, for a long time, probably been pretty happy with either their local broker or their relationship with a larger broker, giving us a chance, and we're doing very, very well. We are a new business machine, and when I take a look at the percentage of trailing revenue that we try to accomplish every year in new business, our goal has always been 15% of trailing. We're, we're just about right there. As our trailing revenue growth continues, that pushes us, in terms of our goals, for more new business, and we are right on track with that. When you start having 15%, 16%, 13% of trailing in new business, as long as you continue those retention levels, 94%, 95%, et cetera, you're, you're getting very nice upside. Yeah, that's, that's good. Those are good numbers. I, I think I've opened up a can of worms because we're going to want to start tracking the net new business wins you guys are posting on a quarterly basis. We'll give you that. Go ahead and ask. Yeah. Hey, in your comments, Pat, you also talked about, and, you know, on the theme of poking holes, right? You talked about the employee benefits business. Kind of stood out, that and the MGA business being, you know, low single digit, mid single digit type of organic. Maybe, you know, I, I don't want to call that an underperforming, but relative to the group, I guess it kind of is. Maybe you could spend a minute and talk about those two businesses because you called them out in your comments. Well, let's talk about the benefits business first. It's, you know, adjusted for the large life case, 5%, I think that's pretty in line with maybe what some of the other brokers have talked about in their employee benefit space. I wouldn't say it's necessarily out of whack compared to what's going on. That business right now doesn't have the loss cost increases that it's going to have. I think there's gonna be medical inflation in that coming up. We work on a fee on that a lot, but by and large, medical cost inflation does have an impact. When you go back to my early days here in 2003 through 2007, you were seeing medical loss inflation, cost inflation in the double digits, and that business was growing, you know, almost double digits also. That will have an impact because you can't keep the inflation out of that space for too much longer. That would happen. On the program business, there's some you just understand how in our case, there are some programs that if there's a change in the state or there's a change in the carrier appetite, sometimes that can cause a little bit of stress in that business. Still, being in those single-digit organic ranges are still pretty damn good in this environment. Yeah, let me add to that. Greg, right now, our clients are dealing with wage cost inflation, as people say, "Look, I'm having a hard time buying eggs." They are not looking to be expanding benefit offerings. In fact, they're doing everything they can to mitigate increased costs and benefits, while at the same time being able to balance what they need to give their people in their regular income, while at the same time maintaining, as you know how difficult this is, their employee base. It is a really tough time, and our consultants, our people are doing a great job. Outside of health and welfare, the effort in terms of our consulting business, the, the, the orders that are coming through are spectacular. It's really a balance of all of that. I agree with Doug. I think that, you know, it, it's a matter of them trying to deal with inflation in their, in the, in the cost of the cover, inflation in their compensation costs for their people, and doing everything. That's where we make our living, is helping to mitigate that. Plan design change, getting that down. Lastly, a lot of that, as you know, we do on a fee. When you're facing compensation costs, inflation costs in the, in, in the underlying purchase of health insurance, the last thing you're doing is giving GBS a 10% rate increase. I think getting five points is pretty damn good. Fair enough. just, I know you've provided some data. This is just a final question. I know you've provided some data around Buck and the integration. That's a business that has had sort of a, a checkered past of success and maybe some challenges. Maybe spend a second, and this is my last question, talking about the integration and why you think the outlook for that business is, is strong relative to, you know, its history. I'll tell you what, I am really excited about that business, and I'm a quarter in, right? We had our board meeting yesterday, and the team that's involved in the integrating and the onboarding, reporting out to our board as we do on our large deals every quarter. The synergies there, first of all, the management team could not be more excited to be finding a home. They've been traded five times, that's part of what you're talking about, Greg. You know, you wake up and your name is not changing, but the owners are changing, then you're changing it again, and you don't know who's on first, who's on second. A big part of our effort of onboarding here has been to tell those people, "Look, you found your last place. Now let's go take care of clients." There's nothing consultants like to hear more than that. That has been a big message to them, and I spent time with those folks in the U.K.. I've spent time with them here. It's resonating. Our retention of people is outstanding, and the orders we're getting in one quarter are mind-boggling. I'm, I'm really. You add to that, we do think there's some great synergies there, and that's not cost takeouts, that's, that's cross-selling. Seeing some of that already, I, I, I think it's gonna be just fine. I'm one quarter in. Well, thank you for your answers, the answers make sense. Thanks, Greg. Next question is from the line of David Motemade n with Evercore ISI. Please proceed with your questions. Hey, thanks. I just wanted to follow up just on the, the group benefits organic, and just on the, the deceleration, which, you know, still a 5% is good, ex the life sale comp, but that was down versus 7% in the first quarter. It does sound, like the acceleration is, is expected. Is it second half expectation, or is that something you think will start to, to move up higher in 2024? I, I wouldn't, I wouldn't be modeling out, David, a huge acceleration there. I mean, I, I spent a lot of time with Doug on the street explaining why 3% organic was outstanding just a few years ago. Yeah. I'm not looking at a business here that is accepting hard rates, given the fact that there's big loss cost trends or reinsurance trends. These are people buying insurance and, and in many instances, not buying insurance. That's the biggest part of what we do, is help people self-fund. That 5% growth is earned with a lot of discussion with a client. It's more akin to what Gallagher Bassett's getting in terms of their renewal increases rather than what you look at on the PC side. I'm very happy at 5%. I don't want to give you this idea that you're going to see some acceleration to 12%. That's not happening. That business also can be heavily first quarter weighted, you get a little bit of that. Not only do you have to recognize the full year of, of, of an account that you sell on the health and welfare side, the consulting in the first quarter tends to be a little heavier or you grow a little bit more than. Because if you think about it, most people are one-one type benefit customers, they're putting the final touches on their business in January and on some of their programs. We tend to make a little bit more money in the first quarter. Can I answer an underlying question I hear from you, David, and the others? Why do we do the Buck deal? You know, it looks like its growth isn't great, doesn't have the margins that a PC broker does. You realize where the pain is for our clients right now? What we are is pain mitigation people. It's sure, it's in property casualty, especially in property, and we're out there working every day to help them get that down. We're bringing self-insurance plans, captive plans, group plans, what we can on the PC side. Every year, year in, out, our clients are dealing with: how do we get people? How do we keep them? How do we pay them, and how do we motivate them, and at the same time, take care of their benefits needs? To get a firm like Buck on our team, when it absolutely recognized as the best in the business, I mean, it puts us over the top in that ability to respond to our clients' needs across all of what we do for them. I think 5% is outstanding. I want to tell the team congratulations. No, thanks. I, I appreciate that. That's helpful, Pat. I guess just maybe switching gears, just on the property casualty rate increases. You know, you gave some numbers earlier. I, I missed, I missed some of them. I was hoping you could talk a little bit about what you're seeing specifically on casualty rates. You know, it sounds like we're seeing an acceleration there if I just strip out DNO and workers' comp. I'm wondering if that is exac- if in fact, what you guys are seeing and how sustainable you guys think those, those- Yeah ... that acceleration is. What I said in my prepared remarks, David, is the general liability is up about 8%. Workers' comp, which, as you know, has been flat to down for a number of years, is up about 3%. Umbrella and package are up about 11%. Now, embedded in each of those lines are different reasons. General liability is social inflation, probably aging population. Workers' comp is clearly, it, it floats with medical costs and floats with employment. Umbrella and package is probably also looking at social inflation. Property up 20% is clearly, that's about exposure units and the need for rate. Yeah, David, when I look at it, you want to break it down. General liability and other casualty, call that 8%-9% is what we're seeing here on the sheet. Commercial auto is 8.5% or more, and that's US business that I'm telling you about. I think in the second quarter, call it 8%-9% on casualty. Got it. Those did tick up versus one, two, it sounds like. Yes. A little bit. Yeah, especially commercial auto. It's more around 6, and now it's 8.5. Got it. Then could you just level set me, you know, if I think about full year, you know, the business that Gallagher writes in, in, in brokerage, how much of that is coming from property at this point? Property is our largest line. Doug, do you have that number? What was the, what was the specific question? Sorry. How much how much of our business is property? About 30% here for the full year 2022. That's about 30% of what we write. Great. Thank you. Thanks, David. Our next question is from the line of Mark Hughes with Truist Securities. Please just see with your question. Yeah, thanks. Good afternoon. Hi, Mark. Mark. Pat, you talked about medical inflation you think is going to accelerate, given that the broader measures of medical costs are pretty, pretty calm these days. I wonder what gives you confidence that that's going to happen? Well, I don't know if I'd say it's confidence, Mark. I mean, I'm not so sure it's good news for the society or for our clients, but social inflation, medical malpractice, cost cover, and any kind of losses in that regard, and the cost of employees. When you take to hospitals right now, are working very hard to make sure that their people stay with them. Their turnover rates, with the pandemic and the like, have increased. Keeping their employees is a big deal, and the cost of doing that. Specialty drugs. Oh, and specialty, Bill's helping me out here. Specialty drug costs and procedures are up significantly. Understood. Thank you very much. Thanks, Mark. Yeah, thanks, Mark. The next question is from the line of Katie Sakys with Autonomous Research. Please just hear with your question. Hi, thanks. Good evening. I want to follow up a little bit on the, the line of questioning on Buck, and clearly an acquisition that definitely expands your, you know, ability to serve your clients and with your portfolio. Kind of thinking about what you guys have seen in the first quarter of integration so far, is there any opportunity to, you know, tighten up the drag or, or the impact that Buck has on, you know, brokerage margins over the back half of the year? Any opportunities you guys are seeing to increase cross sales or maybe, you know, find some expense synergies, or, or should we kind of expect that to materialize more in 2024? I think it's more 2024. Go ahead, Doug. Yeah, I would say 2024. As 2023, we're still getting our feet under us. Also, I'd like to have the, as a friendly amendment to the statement, the role in natural impact of a business that's it runs naturally slightly lower margins. Call it in` the, in the, you know, in the 20s somewhere versus in the 30s, right? The drag on us is what you see on the face of it, but they, they actually have a nice improvement opportunity as we join forces together to get better themselves, and that's really what we're looking at. If we can take this business that's in the, in the, upper teen``s and move it into the mid-20s, I think that's a good margin for that business. I think Pat said it best. They've went through five different owners. They have spent so much of their time in the last couple recent roles of becoming a freestanding, independent organization, and there's extra cost that goes into that. By being a part of us and us being better together, I think we'll naturally see that natural improvement in their underlying margins. They should be margin accretive after you get to, you know, as they improve their margins, they will improve our margins once we get through the first quarter of 2024. Katie, to your point about cross-selling, let me be clear. We do see cross-selling opportunities, PC to benefits, benefits to PC, for sure. What we're very excited about is cross-selling inside Gallagher Benefit Services. Their strength in the United States is in areas that we're not as strong. We've always been in defined benefit pension consulting, for instance, but they come with terrific strengths there. They're not probably as strong, although they do quite well, but not probably as strong as we've been in health and welfare. If you take a look at that, now you're not trying to talk to a new party at a client, you're already dealing with the person who buys benefits. Let me bring in my partner who does health and welfare, and we're already seeing a lot of that. I think there is good cross-selling. I think that margin improvement will come, and I'm excited about it. Thank you so much. One more question on, you know, the outlook for risk management? Go ahead, Katie. Oh, so sorry. Just, just one more question on risk management. Doug, your, your comments seem to imply a, a little bit of a sequential slowdown in organic on the back half of the year, adjusting for, you know, lapping last year's exceptional outperformance. I'm just kind of curious, is there anything you'd call out on that, you know, 14% and 10% organic growth guide that, you know, might be a slight headwind to, to growth as the year wraps up? It's just the nature of this business, if you look at it over the last 20 years, is that you can get some pretty large clients that roll into your business, and they don't come as steady as, let's say, a smaller smaller clients might do. If you sell the likes of large U.S. corporation X, and you sell them in the fourth quarter last year, you're going to get the benefit in the fourth quarter, first, second, third, and then you got to lap yourself in the fourth. It's more the timing of new business on larger accounts that's causing that. If you stack it up 18% this quarter, and if you think 14 and 10, when you get down to the end of the year, you're talking some nice, what is it, 13% organic growth in that business. Then we do have some nice larger clients on the drawing board right now that we're proposing on. I don't know if they'll hit in the fourth quarter or if they'll hit in the second or third quarter. It takes a year or two to sell these larger accounts, so it's just a little bit more naturally lumpy on a quarter-by-quarter basis. I would encourage you to look at it on an annual basis, and if you think about, you know, what they did last year, and then you're looking at this year at 13, there's actually a sequential step up on an annual basis. Great. Thanks for your insights. Thanks, Katie. Our next question comes from the line of Meyer Shields with KBW. Please proceed with your questions. You out there, Meyer? Sorry, I was on mute. Am I coming through? Oh, there you go. Yep, you're coming through now. Okay. Yeah, well, you know, I probably do better when I'm mute. Same question from two perspectives. Are your clients dealing with affordability issues? I'm asking that in the context of what you said about pricing legitimately needing to go up, and I'm wondering, how much of that can client- how much more of that can clients take? Is that going to shift sort of the revenues that you get from commissions as opposed to captive management or something like that? Yes, that's one of the things that gets us excited because that's the genesis of our growth. That's what took us to a place where we could get public in 1984. We are the people that help folks deal with untenable situations and turn them basically into risk management approaches. It's called larger tensions. We do that in a number of ways, whether it's by line, by state, whether it's by putting someone into a self-captive, whether it's just finding them a pool to be part of, that is a real defining aspect of Gallagher's capabilities. You know that. Okay. Yeah, I know that conceptually. I'm just trying to, I'm trying to digest the idea of how much more insured can take, and just trying to get my head around that, which, you know, may be at odds with what underwriters actually need for rate. Yeah. I think you have to- Go ahead. I think you have to, you have to look at it this way. What percentage of a customer's budget really is spent on insurance? Let's say some of the averages are 3%, 4%, 5% of what their total, budget they're spending on insurance. This isn't 30% of their cost structure. How much more can customers take in terms of this? Our job is to make that as small as possible. Let's never, ever forget that. That's what we do, day in and day out. How much more they can, can they take? Well, if their loss experience is bad, they're going to have to take some more. Well, also, if I remember, this is not anti-underwriter. Underwriters are happy to have us help clients move away from loss to them. if there's more self-assumption and they pick up an excess placement at the right rate, they're happy. It's not like they say, "Oh, my God, you ripped all this premium away from me." They're, they're they understand the partnership. We're counseling on, "Look, take more rate, make it easier for that carrier to participate in this at the right place on this coverage map, and we'll be able to give you the limits you want, but you got to take more skin in the game, that's all." That, I think, is, is what we do better than anybody. Okay, that's tremendously helpful. Same question on the reinsurance side. We've got property rates going up pretty dramatically. Is Gallagher Re telling its property clients that they should be buying more reinsurance in 2024 than they did in 2023? I tell you what, what I'm impressed with our reinsurance people, and it's way more sophisticated than I am, frankly, but they are the best in the world at capital management with their clients. This isn't a matter of us going in and talking to the local contractor that doesn't know what I'm going to do with a big-time property increase or something like that. These are sophisticated buyers. They see it coming, they know how to balance their portfolio, really, the, the advice Gallagher Re gives is not just, "Buy it. Sure. It's all about. Again, I mean, this is, this is one of the things that's exciting to me in terms of my learnings with Gallagher Re, is that they are right at the crux of helping these clients manage their capital. Okay. One more final question, if I can, just because you talked about medical cost inflation. Is the medical cost inflation that you're anticipating on the, call it, consulting side, is that manifesting itself at all in workers' compensation claims that Gallagher Bassett is processing? Sure. Yeah, absolutely. I mean, a big part, a big part of workers' comp is medical only. That's escalating every month. Okay. It's our job to help mitigate that, just like we do on the on the employee benefit side. Yeah- Use of managed care is very, very important. You, you- Yeah, I just. Greater growth in expert adjusting and services in Gallagher Bassett as medical cost inflation hits that too. Clients will look to a Gallagher Bassett to help them reduce their total cost of risk, and, when medical inflation goes up, that they will be clamoring for Gallagher Bassett services. That's part of making sure we deliver the best outcomes. No, absolutely. I'm just wondering when the workers' compensation joyride comes to an end, but this has been tremendously helpful. Thank you. Thanks, man. Thank you. Our final question is from the line of Michael Ward with Citi. Please proceed with your questions. Hey, guys. Thank you. I was just wondering on the M&A pipeline that you're talking about from the beginning, is that would you say that's skewed to P&C, or could there be employee benefits in there too? Well, it'll be both. Yeah, we keep a good, strong pipeline on both. We're not going to have another Buck on that list. I mean, Buck was one of the biggest players in that industry, which clearly moves us up in the ranking substantially. There are plenty of smaller practitioners we'd love to have on board. Our tuck-in acquisition process has been benefits forever, along with P&C. That's not a new thing. There's, there's lots of activity in that regard. I think fundamentally, any, any smaller brokerage business that finds that they need more capabilities, whether it's P&C or benefits, it's the same decision by the, by the owners of those businesses. They just think that they can use, join us. Together, we'll be better as we service those clients, and the capabilities they can get from us, they'll get it from, from whether it's wholesale, whether it's retail, whether it's benefit. Even in Gallagher Bassett, is they have, have specialty acquisitions there. As the owners, it's the same reason they're selling themselves, is because they need capabilities, and they think Gallagher is the right place to get those capabilities. Great. That's helpful. Thank you. Then, maybe, in terms of internally, in terms of your own wage, sort of inflation monitoring, just curious if that has calmed down a little bit as inflation overall has slowed down? Here's the thing. We didn't see the great resignation that you read about in the papers. We've talked about that quite a bit. We were very fair with our employees on the amount of raise pools that we've given. Those raise pools are larger in 2022 and 2023 than they were in 2018 and 2019 on a per employee basis. We've recognized that there is some cost that our employees have to bear, and so we think that the raises we've given them have been very fair and have acknowledged the inflation in the environment. We haven't really sat down to plan for next year yet to see where we'd be in those raise pools, but I obviously would be fair with our folks. As you see, some of the inflation numbers are cooling down on what it costs to live. By and large, I think that we've been very fair. We've, we've. Throughout our history, we have given raises every single year that I've been at Gallagher, and we recognize the importance of our employees to do that. We haven't seen a big stress on that. Awesome. Thank you, guys. Thank you. Thank you. Our next question is from the line of Scott Heleniak with RBC Capital Markets. Please proceed with your question. Yes. Just a quick question on the risk management side. Wondering if you, if you could give a little detail on the claims count differences and, and changes, if both claims count and severity and kind of what you're seeing versus either recent quarters or year over year, and I guess I'm more interested. I know you touched on a little bit, just on the, on some of the casualty lines and, and workers' comp and, and liability and kind of what you're seeing there in terms of the counts and, and the average claim size that you're, you're handling at, at Gallagher Bassett? All right, three things on there. First, when you look at it, we were seeing more COVID claims last year, and that's, that's basically gone to, to, to very little at this point, yet we still grew through that. Kind of existing customers, we, we consider the claims arising for our existing customers to be flattish, maybe up a little bit. Now, that was a trend that we were seeing also when you go back pre-pandemic because as workplaces get safer and safer, really the success that you're seeing in the organic is really our new business and excellent retention. That kind of tells you, flattish from existing customers, growing through the loss of COVID claims and better, considerably better new business and, and, and, and better retention. What are we seeing for severity within that? Severity is going up. There's no question on average, as a percentage, I, I don't know if it's 5% or 7%, but overall, something like that. Okay. That's a, a helpful detail. Then just another question on the M&A pipeline, since it was so significant compared to recent quarters. Just wondering if you could also just talk about or comment on how much of that is how much of the trend you're seeing is international versus domestic? I'm not looking for a specific breakdown, but anything you can share there on are you continuing to look at a lot more international deals than you had over the past, you know, few years? Our international pipeline is pretty steady. It's the majority of what we're looking at is U.S. domestic. Yep. Okay. Then finally, any earlier read on July renewal premium? I know it's probably a little bit early, how that's comparing to the 12%, or is it just too early on that? Our July numbers are better than our June numbers. I looked at the overnights from last year, and there is a noticeable difference. Now, July is not over. A lot of your activity happens in the last week here, but right now, our early reads month-over-month is there is another step up. Okay. Interesting. Great. Thanks for all the answers. You bet. Thank you. The final question is a follow-up from Weston Bloomer with UBS. Hey, thanks for taking my follow-up question. Are you guys disclosing what free cash flow was in the 2Q or any updates on the level, maybe as a percentage of revenue that you're expecting for full year, as you integrate Buck or given the strong 2Q? Q2 is our notoriously smallest quarter because that's when we pay out all of our incentive compensation. We pay that in April, so the Q2 is our smallest. The second half of the year is the largest. As a percentage, you, you all toil in that, those numbers more than we do. That's just not really how we look at it. The fact is our cash flows closely track to our EBITDA growth. As you know, that because of our tax credits, our tax load as a percentage of our EBITDAC is usually somewhere in that 8% range. Our CapEx is pretty consistent with prior years, so you don't have a significant change in that. The only thing that really kind of impacts our cash flows different than EBITDA, would be a little bit of taxes, a little growth in CapEx, and then, and then obviously, if we're paying integration costs, some of those will, will go out in cash, too, on that. Right now, our cash flows track very close to what our EBITDA is. The growth in the EBITDAC is pretty much so what you're going to see in the growth in our cash flows. Got it. Thanks. Then maybe X integration cost. Is, is Buck maybe cash flow neutral or maybe slightly cash flow negative, just given the lower margin there? Well, it's cash flow positive. I mean, listen, the integration, we're not spending that much on integration on this acquisition. I would say over three years, I think we're going to spend $125 million, something like that. You know, it, it throws off cash flows in excess of that. It's a great business. It's a great business. Yep. Great. Thank you. All right. Thanks for, thanks for being with us this evening, everybody. I really appreciate you joining us. I think you can probably tell that myself and the team are extremely pleased with our second quarter performance. We're reflecting on full year 2023 financial outlook relative to our early thinking. It has improved on every measure. As we sit here today, we remain very bullish on the second half. Most importantly, to our more than 48,000 colleagues around the globe, thank you. For all you do day in and day out, I believe our continued financial success is a direct reflection of our people and our culture. Thank you very much. We look forward to speaking with you again at our IR Day in September. Thanks for being with us. This does conclude today's conference call. You may now disconnect your line at this time.