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Good afternoon, and welcome to Arthur J. Gallagher & Co's Second Quarter 2024 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 and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Thank you very much. Good afternoon. Thank you for joining us for our second quarter 2024 earnings call. On the call with me today is Doug Howell, our CFO, other members of the management team and the heads of our operating business divisions. We had an excellent second quarter. For our combined Brokerage and Risk Management segments we posted 14% growth in revenue, 7.7% organic growth and 8.1% if you include interest income. We also completed 12 new mergers totaling $72 million of estimated annualized revenue. Reported net earnings margin expansion of 35 basis points, adjusted EBITDAC margin expansion of 102 basis points to 31.4%. GAAP earnings per share of $1.70, up 15% year-over-year, and adjusted earnings per share of $2.68, up 19% year-over-year, another great quarter by the team and right in line with the expectations we provided at our June IR Day. Moving to results on a segment basis, starting with the Brokerage segment. Reported revenue growth was 14%. Organic growth was 7.7% at the midpoint of guidance, and above 8% if you include interest income. Adjusted EBITDAC margin expansion was 98 basis points at the upper end of our June IR Day expectations. Let me give you some insights behind our Brokerage segment organic. And just to level set, the following figures do not include interest income. Within our PC retail operations, we delivered 6% in the U.S. and Canada, 7% in the UK, Australia and New

Thanks, Pat, and hello, everyone. Today, I'll start with our earnings release. I'll comment on second quarter organic growth and margins by segment. Punchline is we came in right in line with our June IR Day commentary. I'll also update you on how we are seeing organic growth and margin shape up for the second half of the year. Then I'll shift to the CFO commentary document that we posted on our IR website, and I'll walk through the typical modeling helpers that we provide. And I'll conclude my prepared remarks with a few comments on cash, M&A and capital management. Okay. Let's flip to Page 3 of the earnings release. Headline Brokerage segment second quarter organic growth of 7.7%. Again, that's right in line with our June IR day, where we forecasted a range of 7.5% to 8%. Notably, we would have been above 8% if a few large live sales had not shifted from second quarter to later in the year. We signaled this possible timing to our June IR Day. So again, no new news here. Recall that we also foreshadowed in late June a small headwind from contingents that adversely impacted all inorganic by about 25 basis points. And finally, just a reminder, that we don't include interest income and organic. If we did, that would have pushed organic higher by about 40 basis points. We believe the investments that we have made in people, sales tools, niche experts and data and analytics are leading to strong new business production and favorable client retention across the globe. Additionally, the insurance market backdrop remains supportive of growth. Pat said renewal premium changes 5% in the quarter. However, our July's renewal premium change thus far is above second quarter. And with an active hurricane season predicted and noise around U.S. casualty reserves growing louder again this quarter, it's not unreasonable to expect mid single-digit or greater renewal premium changes in the second half of 2024. So our organic investments, combined with the insurance market conditions, continues to support our 2024 full-year Brokerage segment organic outlook. We are still seeing it in that 7% to 9% range. So now flip to Page 5 of the earnings release to the Brokerage segment adjusted EBITDAC table. Second quarter adjusted EBITDAC margin was 33.1%, up 98 basis points over last year and at the upper end of our June IR Day expectations. Let me walk you through a bridge from last year. First, if you pull out last year 2023 second quarter, you'd see we reported back then adjusted EBITDAC margin of 32.1%. Second, you need to adjust for current period FX rates, which had a very limited impact on margin this quarter. So 2023 adjusted FX margin was also 32.1%. Third, organic and interest gave us nearly 110 basis points of margin expansion this quarter and then the impact of M&A and divestitures used about 10 basis points of margin. That gets you to second quarter 2024 margins of 33.1%, and therefore, that's nearly 100 basis points of brokerage margin expansion. That's really, really great work by the team. As we look ahead to the second half of 2024, we are still expecting margin expansion in the 90 basis points to 100 basis points range. So third and fourth quarter will look a lot like second quarter. Recall, first quarter 2024 still had the roll-in impact of the Buck acquisition. So the math for full-year 2024 will show about 60 basis points of full-year expansion, but that would be about 80 basis points full-year without Buck, which feels about right, assuming we posted organic in the 7% to 9% range. Let's move now to the Risk Management segment and the organic and EBITDAC tables on Pages 5 and 6 of the earnings release. Another excellent quarter. We saw solid new business, fantastic retention and growing claim count. We posted organic of 7.7% and margins at 20.6%, both were right in line with our June IR Day outlook. Looking forward, as Pat said, we see organic in each of the next two quarters around 7% and margins around 20.5%. If we were to post that, we would finish the year with organic of 9% and margins of approximately 20.5%. That also would be great work by the team. Turning to Page 6 of the earnings release and the corporate segment shortcut table. Adjusted second quarter numbers came in just better than the favorable end of our June IR Day expectations. All of that was due to some favorable tax items within the corporate expense line. All right. Now let's move to the CFO commentary document, starting on Page 3, a few comments. First, foreign exchange. The dollar has weakened over the past month, so please make sure you incorporate these updated revenue and EPS impacts from FX in your models for the Brokerage and Risk Management segment. Second, Brokerage segment amortization expense. Recall, while this impacts reported GAAP results, we adjusted out so it doesn't impact adjusted non-GAAP earnings. This line can also be a bit noisy from time to time. Late this quarter, we received updated third-party M&A valuation estimates on a third – or excuse me, on a few recent acquisitions and also made some balance sheet adjustments at the end of the quarter. You'll see that in Footnote two at the bottom of the page. Looking forward, we expect amortization expense of about $155 million per quarter. Again, all of that is adjusted out, but it does cause some noise in the reported GAAP results. Now it's the risk management amortization and depreciation line. Here too, we received updated M&A valuation estimates for our recent acquisition, which is also described in Footnote five. The net impact to non-GAAP results is about $0.01 to EPS this quarter. Going forward, we are now expecting a lower level of depreciation and amortization as a result of that M&A valuation report. Turning to the Corporate segment on Page 4, no change to our outlook for the third and fourth quarter. Flipping to Page 5 to our tax credit carryforwards. It shows about $800 million at June 30. While this benefit won't show up in the P&L, it does benefit our cash flow by about $150 million to $180 million a year, which helps us fund future M&A. Turning now to Page 6, the investment income table. We call this modeling help breaks down the components of investment income, premium finance revenues, book gains and equity investments in third-party brokers. And as a reminder, none of these items are included in our organic growth computations that we present on Pages 3 and 5 of our earnings release. The punchline here is not much has changed from what we provided at our June IR Day. We are still embedding two 25 basis point rate cuts in the second half of 2024, and we have updated our estimates in this table for current FX rates. When you ship down on that page to the rollover revenue table, second quarter 2024 column, the subtotal shows $128 million and $142 million before divestitures. The $142 million was better than our IR Day outlook due to a few acquisitions performing very well during June. Looking forward, the pinkish columns to the right include estimated revenues for M&A closed through yesterday. So just a reminder, you'll need to make a pick for future M&A. Moving down on that page, you'll see Risk Management segment rollover revenues have been updated for our early third quarter acquisition. For the next two quarters, we expect approximately $20 million and $15 million, respectively. Please make sure to reflect these additional revenues in your models. Moving now to cash, capital management and M&A funding. Available cash on hand at June 30 was approaching $700 million. When combined with our expected free cash flow in the second half of 2024, which is typically stronger than the first half, we are well positioned for our pipeline of M&A opportunities. In total, we continue to estimate we could have $3.5 billion to fund M&A opportunities during 2024 and another $4 billion in 2025, all while maintaining a solid investment-grade debt rating. And remember, if we don't spend it all, it opens the door for share repurchases as well. Okay. Another excellent quarter and fantastic first half of the year. Looking ahead, we see continued strong organic growth due to net new business wins, a large and growing M&A pipeline, and many opportunities for productivity improvements. Add that to a winning culture, and I too believe we are very well positioned to deliver another terrific year here in 2024. Thanks to all the hard work by the team, and back to you, Pat.

Thanks, Doug. Operator, do you want to open it up for questions, please?

Yes, sir. Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is coming from Elyse Greenspan with Wells Fargo. Please proceed with your question.

Hi, thanks. Good evening. My first question is on the wholesale organic growth. You guys said it came in at 11% in the quarter. I believe the IR Day guide was 7% to 9%, and I think that reflected the slowdown you expected in open brokerage, I think, on the property side. So what changed relative to that guidance, and how the results came in, in the quarter?

Listen, we had a terrific finish to the end of June. Submissions were up 31% during June. There is a – clearly a continued use of wholesalers. We're not seeing really any significant shift back to the primary market and the submissions were up and so our guidance is up.

Okay. And then you – at your IR Day, you also had said when we think about next year, that it feels a lot like 2024. I think the assumption right is perhaps something still within the range of 7% to 9% organic in brokerage. I'm assuming that still remains the case, if you could confirm that. It's obviously been a few weeks. And then if that's the case next year, if this year's margin expansion was 80 basis points without the Buck and M&A noise, would that be the rule of thumb in terms of margin expansion for next year if you're in the 7% to 9% organic growth range?

Well, yes, let's reaffirm that we see next year, it could be very similar to this year. Let's see what happens with hurricane season, casualty rates, interest rates, the election. So there's some unknowns that are happening, but we still think that next year feels a lot like where this year will come in. When it comes to margin expansion, let us work on that a little bit during our budget season. We'll start that before our September IR Day. We should have a good idea in October. But there's nothing systemic out there that would cause us to believe that in a 7% to 9% organic environment, you could see margins up in that 75 basis point to 100 basis point range.

Okay. Thanks. And then my last one. You guys said – you said you have $3.5 billion to fund M&A this year. How much did you spend in the first half of the year? And given the pipeline that you guys see, does it feel like there might be some buyback this year? Or is it still kind of TBD?

So I think we've spent around $700 million thus far this year. We have some commitments out there. Do I see us having some buybacks? Maybe. We do have the large earn-out payable that's due right after the first of the year also. That's generally – we don't include that in that number. We kind of anticipate that, but that – we'll see. I just got off the phone an hour ago with one of our M&A bird dogs here in the U.S., and he's really starting to feel upward pressure on opportunities for M&A. There are some that are sitting there thinking that we'll see what happens with the November election. If it goes Republican, there's a lot of proposals to drop the capital gains rate maybe down to 15%. So you might have people that try to push that into January. If the Democrats win, then there might be a push to get things sold before the end of the year. So we're sitting very similar to where we were before an election three and a half years ago and where we were seven and a half years ago. There is a lot of uncertainty on M&A flow that revolves around the presidential election. So I think we've got a great shot of using it all. And if not, we'll take a look at what happens on share repurchases.

Thank you.

Thanks, Elyse.

Our next question is from Mike

Hey. Thanks. Good afternoon. I hope this question makes sense. But on the pricing environment, you always give good commentary on the renewal premium changes and you kind of give it overall and by product line. And so the RPC, right, has decelerated more recently to around 5%, how is that interchanging with your organic growth? Why is there a bigger delta now between your organic and RPC versus what we saw early this year and last year?

All right. So a great thing and maybe we haven't talked about it directly for quite a few quarters, but you always have to think about the opt-in, opt-out of the buyers' behavior. When prices are going up, buyers opt out of coverages, which might mean they increase the deductible, lower a limit or just don't buy certain coverages. As prices start to moderate or slower amounts of increases, they tend to opt back in. They reduce their deductibles, they raised their limits and maybe they buy coverages and they said, we just couldn't afford before. So if you go all the way back into our investor materials, there is always a delta between rate and exposure and what our organic growth is. And so that's why in periods when you see property is up 12%, we're not growing our property lines by 12%. They're growing 7%, 8%, 9% that's actually our revenue. So you always have to remember the opt-in, opt-out impact. Then the other thing to do is you got the dynamic of large accounts versus mid-market and small accounts that can influence that. So we're giving you a feel of what's going on in the market, but the behavior of our actual customers can vary depending on – by rational buying behavior. Prices go down, I buy more. Prices go up, I buy less.

As Doug said – let me hit on that as well, Mike. Let's not forget what our job is. So Doug hit right on it. When rate and exposure looks like it's up 12% and you say, well, how come you're not seeing that write in your renewal book? Our job is to mitigate that. And we start right with that promise like wait a minute, here's where we see the market coming. A good broker gets out in front of this with their clients' months. Here's what we see in the market, here is what's coming, what are we going to do about it? Let's take retentions up. Remember, you dropped to cover before now it's time to add it. So there's a lot of moving parts between those two numbers.

Got it. And obviously, it's great you guys disclosed it. And so I guess I just want to put a final point on it. So is it fair to say that you're doing a good job for your clients and on a year-over-year basis, it's putting out a little bit of, I guess, pressure on your organic year-over-year? And separately related rate [indiscernible] do clients have the same amount of flexibility as they do in other lines that would cause the RPC disconnect to continue?

Yes, definitely. Absolutely. Number one, yes, if you throw me the softball, we're doing a good job for our clients, the answer is going to be best in the business. And we think these numbers show that. And we think the growth numbers show it. Absolutely. And yes, you'll continue to see always some change between what's being reported as growth in units of exposure and premium rates based on what we do. And the tools in our toolbox are unbelievable. So do you want to look at a captive? Would you like to take your attention up? It's not just, do you buy insurance or don't. Let's start with the things that maybe are the last things you should insure and the first things you'll self-insure. There's a lot of that work going on with our people every single day. By the way, that appetite for risk is very individual. It's not prescriptive. You can't take a book, there's no AI that says, Oh, an auto dealer has this much appetite for risk based on the number of cars in a lot. It's not how it works. So that's where our profession comes in and dealing with those people, and then our advice is critical. It's not just, well, I'm pretty bold here. I think $1 million retention makes a lot of sense. Wait, wait, wait, we think it looks better this way. And that's what we get paid to do.

Okay. That's helpful. And just lastly, pivoting to reinsurance. To the extent you have a view, one of the largest reinsurers today put out some data kind of showing that reinsurance demand. I mean you guys have done a great job not only taking market share, but kind of being able to keep your organic high because of that demand, increased like mid teens-ish this year. And if we kind of think about what's going on in personal lines, there's a lot of inflation. So just curious, would you expect kind of demand for reinsurance. I don't know if you think all the way into 2025 yet, but to remain at kind of pretty high levels relative to historical and relative to this year?

It'll go up. Yes, I do for a lot of reasons. I think that you're going to see the opportunity to buy more at prices that look more reasonable. And there have been cutbacks in the purchase of certain. The other thing is that these nuclear verdicts are real, and people are seeing that and they're going, it doesn't cost us much to buy on the high-end, the top of the tower, it does downward there's a lot more activity. And I still want to be sitting here with some goofball jury comes up with a $1 billion award.

Got it. So coming as seaside too, maybe more demand. Okay. Thank you very much.

Thanks, Mike.

Our next question is from the line of Gregory Peters with Raymond James. Please proceed with your question.

Hey, good afternoon everyone.

Hey, Greg.

I guess for my first question, during your Investor Day, you spoke about net new business wins and clearly, your results reflect that. I was wondering if you could give us some more color on how the quarter shaped up and how we should think about your net new business in the second quarter versus, say, the net new business wins in the second quarter last year or some additional metrics around that?

Well, it'll take me a minute to dig it out, but I can tell you that June year-to-date, we've actually expanded the spread between new and lost by a full point. And I think that's probably the best way to look at it. The absolute numbers are kind of irrelevant. Our non-recurring is also coming back. Before some of the non-recurring revenues might have been putting just a slight drag on organic, but now they're actually being in line with just our recurring business. So you're seeing an expansion of our spread between new and lost. How do we see that going forward? Greg, it gets more and more complicated. I actually think our team will do a better job showing our wares and our capabilities in a more of a stable rate environment versus kind of some of the chaotic rate environment that we've been seeing over the last few years. We've developed – we spent so much money on resources in the last five years. Three of those were consumed with COVID. Two of those have been consumed with some chaotic market behavior. Put our guys on a field with kind of calm rate environment, a client that's not trying to just save their business and rebuilding it after COVID, I think you'd be amazed at the digital and data and analytics and expertise. And now bring our reinsurance folks into bear, stack them up with our wholesalers, I got to tell you, it is a compelling offer at the point of sale that I would think that would absolutely deliver better net new business, more new, less loss as our clients really see the capabilities that we have built over the last five years. Arguably, maybe we've spent $1 billion in capabilities over the last seven years, something like that. So that's going to come out at the point of sale and give us a little calm in the market, and I think you're going to see our new business continue to go up.

Excellent color. Thank you. One of the things you've also talked expansively about in the past is the offshore centers of excellence. And this kind of dovetails with the opportunities for margin expansion. Is it your sense for Arthur J. Gallagher that you sort of maximize those opportunities? Or do you see further potential to – for more opportunities in offshoring to help drive some margin improvement?

Well, this is Pat, Greg. Let me take the operational side of that, and I'll throw the ball to Doug for the numbers and any kind of discussion there. But everywhere I look, I see opportunity and unbelievable benefits from using our centers of excellence. We started off checking policies 20 years ago with 12 people. We now have 12,000 people supporting over 400 services in 100 countries. It is unbelievable the level of professionalism that they help us attain. And that is a differentiator at the point of sale. It's a differentiator when we're recruiting. It's a differentiator in everything we do, and I don't see any sense of that slowing down or not being something that continues to expand. It's not just about replacing heads by any means. It's about having the people that should be doing things, doing them and freeing up those that should be doing other things, giving them the time to do that, which I do think feeds into retention and new business. So I think the – our centers of excellence are a unique product offering back to Doug's point about all the things we've invested in I think they are a very beneficial add to our sales list of things we provide at Gallagher. And as we grow through acquisitions alone, everyone of those people join us and we immediately start plugging them into this resource, which is another one of the reasons they join us. So to me, it's a very differentiating thing that we do. I think our team there is absolutely spectacular, and I'll let Doug address the numbers.

Yes. I think if you talk about the growth path of our offshore centers of excellence, I think remember they work only for us. They're an integral part of our team. There isn't that they or we they are us. If you look at some of our outlook, if we're going to be $20 billion of revenue, there'll be almost 30,000 folks there. So the growth path of our India and other area service centers will grow faster than the headcount in our other areas. But more importantly on this is we've been on this nearly 20-year journey now to standardize, make our operations consistent. It really is going to allow us to deploy AI into that environment. AI is terrific when you have consistency of information and repeatable behaviors and processes. And we have that, and we've spent nearly 20 years doing this. We have a jump, I believe, compared to most by almost a decade. And I think that some of the tests that we're using with AI now will make our folks there better, will make the different type of job for our folks in the centers better, it will make our sales folks better, our service folks better. And I can speak, and I've got 57% of my entire global finance, worldwide finance team operating out of there, and I can see it going to 80%. So it is going to be a service and sales differentiator for us because of the hard work we've put in for the last 15 years.

Thanks for the color. Just a point of clarification. And I probably should know this number, Doug, but I don't remember. On the capital management side, you said, well, listen, if we can't do the deals, you get through your earn-out, you might consider share repurchase. When was the last time you guys were active in share repurchase?

Well, let's see, it probably was maybe in 2000, when was Brexit? 2007 or 2008 years ago, whatever Brexit was.

Okay. All right. No, no. Thanks for the answers.

Thanks, Greg.

Thanks, Greg.

Our next questions are from the line of David Motemaden with Evercore. Please proceed with your question.

Hey. Thanks. Good evening. I just had a question. I was hoping to get a little bit more color on the July RPC acceleration that you mentioned, Doug, maybe just a little bit around the lines. Is it property moderation kind of pausing, or is a casualty acceleration? What's going on there?

Well, actually, a little bit of both. We actually saw it in property. And actually, property is a pretty heavy quarter for us here in the second quarter. If you think it's about a third of our business, I think here in the second quarter, it might comprise 50% of our mix. So property in July. We did see a slight tick up. I'm talking a point or so. I'm not talking about is five or eight points. It's one point to two. Casualty rates are showing some, I wouldn't say acceleration. We used the word advancement in terms of where they are because – but they're steady. We'll see what happens with the – with pricing here in the second half of the year coming out of the carriers. So I would expect that to advance more. So not a jump up, but certainly, again, our dailies, they come out overnight. I looked at it last night, and we're seeing a tick up on both property and on casualty.

Got it. Thanks. And there was a line in the press release on the adjusted comp ratio that caught my eye, just where you noted savings related to headcount controls. That's the first time I've seen that in, I can't remember how long. I'm just wondering, is that a – I guess, is that to do with – something to do with the offshore centers or is this more of a concerted effort to show some margin expansion as we think about this year and into next year?

I think that the answer is this. First of all, if you look at what we did during COVID, we actually took out quite a few folks, and we've been hiring back since then. Our business has grown into that. We haven't stopped hiring by any means, so it's not an indication of everything. I think the teams just are seeing of their workload models that we're probably okay staffed in the environment that we are right now. So I would read that into it, but nothing systemic, but just maybe that we've hired back into the capacity that we need in 2023.

Got it. Okay. That's helpful. And then maybe just sneaking one more in. Just on the contingent commission accruals that you guys had made the true-up to this quarter. I guess, we have seen a lot of noise this quarter on casualty reserves, particularly on the more recent years. I'm wondering how you feel about the potential for more of those reserve adjustments to come through and how that might impact the contingents?

All right. First of all, on the supplementals, we've done pretty well year-to-date. Contingents, we did have some development that happened. We're probably not accruing as, I don't want to use the word bullish, but I will for the second. And as we were – as maybe we could. Casualty, we're cautious on it. Some of our programs and some of our binding operations, you got to be a little bit careful on performance-related compensation there. But I don't see a systemic shift in how we believe that our total compensation is going to happen. Maybe some bumps a little bit per quarter, but we're talking a couple of $3 million on a $130 million number year-to-date. So it's pretty small.

Yes. Understood. Fair. Thank you.

Thanks, David.

Our next question is from the line of Mark Hughes with Truist Securities. Please proceed with your question.

Yes. Thank you. Good afternoon. On the risk management business, maybe we've gotten used to the elevated growth for quite an extended period of time, the 7% in the next couple of quarters. Could you maybe just talk about the growth environment there relative to what it might have been in prior years? And what's your expectation? Is this a little bit of a lull? Or is this a good number?

Right. So first of all, let's make sure you asked about the history is that I think in 2022, we posted about 12% annual organic growth, 2023, it was – excuse me, 2021 was – it was 12%, 2022 was about 13% and last year is pushing 16%. This year, if we get 9%, we did talk about a couple of very large wins that we had that incepted in mid-2023. What we're seeing in our book of business right now is actually reassuring, not that we need reassurance. This is a great near double-digit grower and has been for a very long time is we're starting to see more and more opportunities in that $2 million to $10 million type customer a year. If you look at the amount of new business sales that are happening relative to, let's say, five years ago, it's nearly doubled now. We're double the size, too, but the carriers are beginning to understand that we offer a highly customizable solution. Self-insureds are seeing that our outcomes are better. So I think that there's a market awakening that we – when we pay nearly $12 billion or $13 billion primarily workers' comp and general liability claims that would be one of the top five, six, seven tiers in the U.S. as measured by total claims paid. So the expertise customizable services is becoming more and more known in the industry. So we're getting many more trips to the plate. Maybe a couple of fewer home runs, but I think we're going to see a lot of doubles and triples out there. So I wouldn't call it a lull because we're in now 9% this year, but we did have two years of some pretty big wins in there.

But we wrote all the big ones. That's not, but [indiscernible] is a lot more difficult, more lumpy than the stuff we're seeing now.

Yes.

Yes. Understood. And then the any way to break out the – within the wholesale to open brokerage versus the MGA and binding?

Yes. Listen, I think that right now, open brokerage is maybe in that 11% to 13% range. And I think that binding and programs might be in the low-mid-single digits, something like that.

Mark, what I'm – what I'm most impressed with and pleased with is the fact that you're seeing that open brokerage number keep moving in nice double digits. My experience with these types of markets, especially with property is that the first line you kind of see submission slow down, people sort of stay where they are. There is a – our submission count is up substantially for the quarter, for the month, for the year. We are not seeing business flow back to the primaries. So the I think change that we've seen that were excess and surplus is becoming much more of the norm and where people want to check out what a wholesaler can do, and then we earn that business, we're not losing it. So submission counts are up, retention rates are up, new business is up, and that's pretty exciting.

Great. Appreciate it. Thank you.

Thanks, Mark.

Thank you. Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your question.

Hey, thanks. Yes. Just a question going back on the opt-in, opt-out dynamics. Just curious, does that flow through net new business and that's what's kind of driving the one point higher, you said June year-to-date of net new business? Or is that something else entirely?

Yes, I think some of that flows back – well, so for instance, a good example of that is a lot of our public entity clients, and as you know, we're very, very sizable in the public entity sector. They just work off a budget. And if the primary premiums are rising, they're taking bigger retentions, they're dropping limits, and they don't – they're not necessarily comfortable with that. So when the opportunity to buy those back up comes up, and they had an extra layer, they expand their coverage, oftentimes, we will call that new business. And at the same time, we're facing the renewal reductions on the stuff that stays with us. But it is a factor of what's available and what their budget restraints are.

Yes, I think it's a little tough for us. If they write a new cover and it goes through a different – if an existing client writes a new cover that goes through our wholesale business, that would be new business. If it's a change in premium level or like a slightly lower deductible or slightly low – higher retention, that would go as renewal change. It's a little tough sometimes to split that apart. But – so part of it goes to new business. Probably if I were going to guess, maybe 20%, 25% goes through new business and 75% would go through the renewal premium change.

Okay. Thanks for walking us through the nuances there. And then just on the revenue indications from the audit endorsements and cancellations, those are remaining positive. Just curious if the rate of change on those is either accelerating or is that decelerating at this point?

All right. Great question. So on the surface, we're about the same as they were last year second quarter. But what happened last year's second quarter, we actually had quite a bit of endorsements that came out of the mini banking crisis. You were seeing a lot of banks increasing their D&Os in April of – March, April of 2023. We didn't have that repeat this year, probably a good thing we're not having that crisis. But interestingly, flat year-over-year, carve that out, that's still up pretty nice.

Got it. Thank you.

Thanks, Rob.

The next question is from the line of Mike Ward with Citi. Please proceed with your question.

Thanks guys. I was wondering if you could update us on the progress with your integrated approach where you're going to market with multiple businesses at a time? I think you talked about leveraging programs, reinsurance and Gallagher Bassett together?

All right. So yes, there's some good program development going on that combines those three together. Then also, you're having the introductions that happen across the units. I think our introductions to our reinsurance folks coming out of our carrier relations folks to the carriers is working very well. We're seeing some nice wins on that. Getting our program folks integrally involved with the reinsurers to create the capital, find the fronting market, it's going very well, at least from the CFO's chair.

Yes. Mike, I think when we talked about that, we weren't talking about taking just individual accounts and saying the way we want to do this is all together now on the XY

Yes. No, that's helpful. Thank you. And then second question was just on the political election scenario type theme. Curious if you have any other kind of tax credit generation prospects in the pipeline, and any, I guess, political risk to those in the near term that we see?

Well, most of our tax credits are already in the bank. So I think we feel pretty comfortable about that. What are we working on? I think that with 45Q that really was passed under the previous above – all above-the-line inflation reduction at, it's made the tax credit market much more common, much more defined, broader, but we're pretty well suited for tax credits for the next four to five years. I'm not – I don't think we need to plunge in to new tax credit projects right now because we just generate the credits and they sit on the shelf for four or five years. The team is working on it, and there are some exciting things that are happening out there across all forms of clean energy that are exciting. But I don't see us doing something big in the next 1.5 years. Let's burn through these credits first, and then we'll see about what we can do. And by that time, there'll be a robust market out there for tax credits. You can get insurance on it now that much more to ensure the credit. So that's a good change in the law. Right now, I think the law is pretty well suited for us to do something in a few years and probably not have to do it with a lot of capital investment into it either.

Okay. So maybe if I'm thinking about it right, that – this dynamic should help bolster you in terms of, I don't know, having extra leverage in the M&A scenario if rates are cut. That should help sort of bolster your competitive edge, I would think. And do you have like a sort of update on the PE interest in the market?

Well, listen not to belabor the PE update. Like I said I just got off the phone with our bird dog. And I got to tell you, my soap box is that I had during the IR Day about the new, what I call less than transparent equity structures that PEs are now doing in order to buy nice family-owned brokers. I think there's starting to be more and more of – the curtain has been pulled back on that, and I think that sellers are really looking at. They don't have the same equity. At Gallagher, you got one equity, owners, employees, people that sell into the business and you on this call own the same equity across the board. That's not how it works now with the PE structures, and it all looks okay, do the models on it, looks okay, what happens if everything goes up in a linear line. Get a little bit of a down draft on that, and the people that give their family's lifetime of work to the PE firms get very little. And I'm telling you that is something that needs to be aware out there. And I think that when I talked at one of the bird dog today, he said, it's becoming more and more apparent to sellers they're getting the last spot of the trough.

Let me take another side of that too, Mike. Second quarter, I believe it was Marsh Perry put out a reporter Optus partners. There were 62 buyers of properties in the second quarter alone. There's a lot of private equity interest in our space. That's not stupid money. I do believe that the multiples have risen, that we've been paying for these properties because of that interest over the years. Having said that, I think the quarter was 20% down in actual transactions. So you've got maybe smarter money, maybe smaller amounts of money, but the transaction count is coming down. I think sellers, as Doug said, are getting a little bit more discerning. And I do think when you take a look at what's happened with some of the roll-ups who are now at a point where it's time to go public, and I won't mention any names, you know who they are, well, let's see how that goes. It isn't an easy slog, and I think sellers are seeing that as well. And by the way, it's pretty easy to join somebody that's going to change, nothing in your shop until they want to go public. Better, I think, as Doug said, and joined me that everybody from the family to you all as investors, you have the same stack. Now one other comment on this. When we do an acquisition, we give the opportunity for everybody in that acquisition from that point on to participate in this equity. We've got an employee stock purchase plan. We have an LTIP program for management and senior producers. We've got all kinds of ways for people to participate in our success and our growth. You sell to the PE people, the owners do great, PE investors hopefully do great, and that’s it baby. Well, I like our model.

Awesome. Thank you, guys.

Our next question is from the line of Grace Carter with Bank of America. Please proceed with your question.

Hi everyone. I wanted to start on the risk management guidance. I think you all mentioned maybe around 9% for the year. I think that the prior guide was maybe 9% to 11%. Could you go over maybe anything that's changed since we last spoke in June? Thanks.

I think the degree of difference on a full-year on – listen, we're talking about a couple of million dollars on the difference between the 9% and 10%. So I wouldn't say that it's made $5 million. So there's nothing that's just – we think that we've got better insight for the rest of the year and so that range is coming maybe to the lower end of it than the upper end of it.

Thank you. And also on the brokerage organic growth guide, I think that you all had mentioned you are considering narrowing it maybe to 7.5% to 8.5% at the Investor Day. Just keeping it at a wider range of 7% to 9%, does that just reflect uncertainty in the environment? Or has anything changed since then? Or am I just reading too much into it entirely?

Maybe the latter. I think it's been four weeks since we talked to you. We just finally got one more data point, and that's the close of June. So we'll talk to you again in September. And either way, listen, anywhere in that range. Look at that, that's 7% to 9% growth on top of 9% last year, 9% before. When you go back in 2019, we grew 6% all in. anywhere in that range is a terrific year. And if we can repeat it again next year, it's another terrific year.

Cool. Thank you.

Thank you. Our last question will be from the line of Meyer Shields with KBW. Please proceed with your questions.

Thanks. Two quick ones, I think. First, I was hoping – hopefully, we won't need to know this, but give us a sense as to the contingent commissions exposure to hurricane season?

No, it's very small.

Very small. Most of that hurricane exposed business, especially in Florida, is in the excess and surplus, Meyer, we're the largest excess and surplus broker, I think, in the state. A lot of that is – all that’s in the E&S markets and none of those are subject to contingents.

Okay. Perfect. That is good news. Second question, just looking for a brief overview of your appetite for additional acquisitions in personal lines, I guess, both within high net worth and beyond that?

Well, you're talking about personal line just being a pure auto writer, that's probably not what we're going to do. We're not great at it. We're an adviser. So if somebody is going to use us to use our advice to help them buy their insurance, that's the business of what we'd like to be in. High net worth on, we do a terrific job of it. I'm telling you our folks are some of the very best in the business, and that's an important spot right now. There's planes, there's boats, there's houses on sand bars, there's – how is on views that have landslide risk, high net worth needs an adviser probably as much as any complex mid-market commercial client. Just going on and trying to buy an auto writer, auto is probably not what we're looking to do. If it's going to be one of those things that it takes advice will be there in that space.

We're actually very excited about the stuff there. I think that's – it's, a Doug said, a real opportunity for us.

Well take your call, Meyer. Just go ahead, we'll help you out with it.

I've got a ping pong table. That's about it.

Well, there's a slip and fall on that one coming.

I think that's our last comment. So just our last question, let me make just a few comments on the way out here. Thank you, again, very much all of you for joining us. I know it's a little late, and thanks to all of our Gallagher colleagues around the world for their hard work and their dedication. These quarters don't just happen. Thanks to your efforts, that means our people we're in a really enviable position our net new business is up. Our M&A pipeline is growing. I'm proud of the year-to-date financial performance. And as you can tell, I'm bullish on 2024 and beyond. So 40 years, 16% TSR, compound average annual growth rate, pretty good 40 years. I'm looking forward to the next 40. Thanks for being with us.