Patrick Gallagher - Chairman, President & CEO Doug Howell - CFO.

Elyse Greenspan - Wells Fargo Sean Dargan - Macquarie Jeff Schmidt - William Blair Bob Glasspiegel - Janney Capital Mark Hughes - SunTrust Robinson Humphrey Quentin McMillan - KBW Charles Sebaski - BMO Josh Shanker - Deutsche Bank.

Welcome to the Arthur J. Gallagher and Companies First Quarter 2016 Earnings Conference Call. [Operator Instructions]. 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 security laws.

These forward-looking statements are subject to risks and uncertainties that will be discussed on this call and which are also described in the Company's reports filed with the Securities and Exchange Commission. Actual results may differ materially from those discussed today. It is now my pleasure to introduce J.

Patrick Gallagher, Chairman, President and CEO of Arthur J. Gallagher and Company. Mr. Gallagher, you may begin.

Thank you, Donna. Good morning, everyone. Thank you for joining us for our first quarter 2016 earnings call. With me this morning is Doug Howell, our Chief Financial Officer, as well as the heads of our operating divisions. There are four key components to creating long-term value for Gallagher shareholders. Number one, we need to grow organically.

Number two, we need to grow through mergers and acquisitions. Three, we improve our quality and our productivity every quarter. Number four, we have to work hard to maintain a very unique culture. We excelled on each and every one of those this quarter. All in, we grew 4.8% organically in our combined brokerage and risk management operations.

We had another 6% of growth through net acquisitions, for a total adjusted revenue growth of 11%. Our quality was recently recognized by J.D. Power and Associates as ranking the highest in customer satisfaction among brokers in the large commercial insurance space.

We became more productive, with adjusted EBITDAC growth of 15% and we expanded our adjusted margins by nearly a full percentage point. Our culture was recognized by the Ethosphere Institute as one of the world's most ethical companies for the fifth straight year. Simply put, an outstanding quarter on each component of our strategy.

Let me spend a little more time on growth, both organic and acquisitions and what we're seeing in terms of insurance pricing. Doug will then go into greater detail on margins, clean energy and capital management. First, in our brokerage segment, let me talk about organic revenue growth. All in organic was 4.8%.

Excluding contingents which are seasonally strongest in the first quarter organic was 4.2%. This is similar to the first quarter of 2015 and up about 1 point relative to the fourth quarter of 2015. About half of this improvement is attributable to stronger new business and about half was due to less drag from rate and exposure.

Focusing now on our domestic brokerage operations which include our retail PC brokerage, retail employee benefits consulting and our wholesale brokerage operations, these units account for about 2/3 of our brokerage segment revenue. Domestically organic revenue growth was about 4.5%.

Of that, retail PC was over 5%, benefits at 4% and wholesale at a little over 2%. Wholesale is feeling some impact from weaker property rates. Commercial PC rates are still down, but they are a manageable head wind and our exposure units are growing a bit.

In our employee benefit consulting business, a tight, multi-generational labor market, combined with rising cost of health care, especially pharmacy costs, along with increased regulations for employers such as the ACA, are creating more new business opportunities.

In the first quarter, the renewal impact from rate and exposure units had about 0.5% negative impact on our organic growth domestically, so no real change from the past few quarters.

I just came back from the RIMS conference in San Diego and the tone from carriers seemed to be similar to what we have been hearing for the past three quarters -- some continued weakness in property, but otherwise pretty consistent conditions.

Moving to our international brokerage operations, that's principally our PC operations in Australia, Canada, New Zealand and the UK which combined represent about 1/3 of our brokerage segment revenues. Organic revenue growth was about 5% within our international operations.

UK retail posted about 3% organic in a relatively flat rate and exposure environment. London and Bermuda specialty posted about 5% organic in a difficult rate and exposure environment.

Australia/New Zealand had a little negative timing, otherwise organic was flat, also in a difficult rate and exposure environment, but we're starting to see pricing bottom out in Australia/New Zealand. Canada posted 6% organic in flat rate and moderately down economic environment.

When you look at our larger international mergers that we did in 2014, they're all doing very well. Integration is done in Australia/New Zealand, nearly done in Canada and should be mostly done in the UK by the end of the year. Let me turn to merger and acquisition growth.

Over the past 20 months, we've returned to our almost exclusive focus on smaller tuck-in mergers. Today's competitive environment for mergers is similar to the last two to three years and a lot like most of the early 2000s for that matter.

But we're maintaining our pricing discipline, with weighted average valuations at about 7 times EBITDAC for the eight mergers we did here in the first quarter. We can pay these valuations because the merger partners that choose us see the long-term value in joining Gallagher.

They see our vast capabilities, they see our proven track record, they embody our culture and they see themselves being more successful as part of us. As I do every quarter, I would like to thank all of our new partners for joining us and extend a very warm welcome to our growing family.

To wrap up our brokerage segment, we posted first quarter results of 4.8% total organic growth. Total adjusted revenue growth was 12%. Adjusted EBITDAC was up 16% and our adjusted margins expanded by 79 basis points, a really strong quarter for our brokerage segment.

Let me move to our risk management segment which is primarily Gallagher Bassett Services. Risk management started the year with a good first quarter. Adjusted organic revenue growth was 4.7%. Adjusted EBITDAC grew 9% and adjusted margins improved by 103 basis points to 17.6%.

Gallagher Bassett continues to deliver consistent, attractive top- and bottom-line results for shareholders. GB's domestic claims management business delivered 6% organic growth in the first quarter, while international operations were closer to flat, excluding last year's run-off fees.

At 17.6% EBITDAC margin, we out-paced our margin target of 17%, while continuing to make investments that will drive future growth. I spent some time at the Gallagher Bassett booth at RIMS and I was able to see first-hand how we're positioning ourselves in the market place. We have an amazing offering to provide clients.

GB, in my opinion, is simply the best. Some of their recent innovations include Waypoint, our suite of decision-support tools based on cutting-edge machine learning technology; Luminos, our acclaimed risk management information system; and our new GB Go, a mobile application to enhance communication and engagement with injured workers.

All these innovations will continue to improve claim outcomes for clients and bring additional revenue to Gallagher Bassett. I don't want to forget to mention our clean energy efforts. Another solid quarter, still on track to post 15% growth in annual after-tax earnings relative to 2015. Is was a great start to the year.

Glad to have the first quarter in the books and we really are hitting on all cylinders. Over to you, Doug..

Thanks Pat and good morning, everyone. Like you said, it's nice to put first quarter under our belt. I'll make some comments on margins, corporate and clean energy, cash and capital management and the highlight a couple things in our investor supplement and CFO commentary documents that we post on our IR website. Okay, first to margins.

Brokerage was up 79 basis points and risk management was up 103 basis points, really excellent work by the team. Within the brokerage segment, adjusted margin expansion was about equal between our domestic and international operations. Domestic was up 75 basis points, international was up 90 basis points.

Recall, our domestic units are running annualized margins in the high 20%s, so to expand here in the first quarter shows excellent discipline.

Internationally, our Canadian, New Zealand and London and Bermuda specialty units are also posting margins nicely in the 20%s, yet we do have some opportunity to further improve margins in our Australia and UK retail units over the next 18 to 24 months.

In terms of integration, the UK team is doing excellent work and we remain on track to be nearly finished with integration by the end of this year. Integration costs for the first quarter were right on our forecast and we still expect 2016 integration charges to be about half the 2015 level.

As for risk management segment, we exceeded our 17% margin target during the quarter and we still think 17% is a good margin to expect for the next three quarters. Moving to the corporate segment, we landed a bit above the high end of the range we provided during our last earnings release, mostly due to clean energy. Most of that was timing.

When you look at page 4 of the CFO commentary document, you'll see the timing between the quarters, yet our full year is effectively unchanged from what we previously provided. For the year, we're still estimating between $109 million and $124 million of net earnings from our clean energy investments.

Okay, to cash -- let's move to cash and capital management. Our first quarter is seasonally our smallest cash-generation quarter. Yet at the end of the first quarter, we had about $250 million of free cash on our balance sheet.

We're working on freeing up about half of it as part of our integration efforts in the UK and the other half is in Australia, New Zealand and Canada that we'll use were M&A, merger and acquisition opportunities, in those geographies.

We also announced a few weeks ago that we renewed and up-sized our line of credit facility to $800 million and we anticipate closing a $275 million debt private placement in early June. Our debt-to-EBITDAC ratio on March 31 was about 2.6 times on a covenant basis and we're targeting a similar level at the end of 2016.

We believe free cash -- we believe between free cash and debt, we can fund our M&A program in 2016, similar to the levels we completed in 2015, with no net shares used.

To clarify, when I say no net shares used, there will be tax-free re-org mergers that require us to use stock, but we intend to offset that through buy-backs, just like we did in the first quarter. All right, a couple items on housekeeping. First, please don't forget that our first quarter is seasonally our smallest in the brokerage segment.

Please use the document on our web IR website called Supplemental Quarterly Financial Information. We give you five years of both reported and adjusted results on a quarterly basis. From that historical information, you can easily see our seasonality.

Second, we also provide a CFO commentary document on our website that has a lot of forward-looking information that should help you build your models. You'll see that items for the first quarter are in line with the forecast we gave you during our last earnings call.

Some sound bites looking forward that you'll see on that document, FX headwinds are mostly behind us, integration is tapering off and this is also now where we're providing all the guidance related to our clean energy investments that used to be in our earnings release.

A terrific quarter on all measures and in the end we're really well positioned for the remainder of the year. Back to you, Pat..

Thank you, Doug. If you look at our first quarter performance, it really was excellent. I believe we continue to execute on our global strategy. We believe that a key component to our execution is maintaining our culture and we work hard to protect and promote it.

Very proud to be recognized as one of the world's most ethical companies by the Ethosphere Institute for the fifth straight year. This is a testament to who we're as an organization and to the caliber of colleagues we have at this great Company.

As we continue to grow and become more global, we're dedicated to keeping our Gallagher culture thriving and strong. Donna, we're ready for questions..

[Operator Instructions]. Our first question is coming Ryan Tunis of Credit Suisse. Please proceed with your question..

This is Crystal Lu [ph] in for Ryan Tunis. My first question was around the strong base commissions and fees growth this quarter in brokerage.

You mentioned in the remarks that the strong new business and better than expected rates in exposures drove that you have visibility on the sustainability of those two items going forward?.

Well I will tell you Crystal we get up every morning and we work really hard on getting the word out that we're the best we believe in taking care of clients insurance needs and our pipeline we use salesforce.com so I have a look into our pipeline and we're very aggressive new business company and all of us every one of around this table is involved every day in helping people put new business on the books.

We’re focused on niche areas that we’re very good at and I think that our new business will continue be very strong I think we have an awful lot to offer our customers and we had got a lot of people out on the street telling people they should be doing business with us..

And for the contingents and supplementals which are really strong this year, I know that you said the contingents had a really strong quarter just because of seasonality but could you kind of on your expectations for those two for the rest of the year as well.

Yes I think the best thing to do on that as we call contingents are significantly skewed towards the first quarter and encourage you to use the supplement that we have on the website that shows you the trends and supplemental contingents in the next three quarters and when you building your models I do some site takes off of that but you can extrapolate just off the first quarter you have to look at the seasonality that comes with those.

But overall the carriers are recognizing the value that we provide in the process and so I think that we've got an upward trend in those that might outpace the trend in our base commissions in fees..

Our next question is coming from Elyse Greenspan of Wells Fargo. Please proceed with your question..

Just wanted to follow up on you guys had laid out on organic growth outlook for the brokerage business about 2.52% to 3.5% for this year.

Obviously Q1 came in a little bit stronger, are you now thinking about the potentially see organic growth come in above that range?.

Above the 2.5?.

2.5 to 3.5.

Yes..

Okay and then you mentioned Australia coming in at about flat in the first quarter, just directionally what type of comp are we coming off what type of organic growth do we see in the fourth quarter can you just remind us and then just based on your expectations thinking forward for the year.

You anticipate starting to see positive contributions from the Australia and New Zealand business?.

Yes always the question this is about just down there some of the couple weeks down Austria folks in if you recall we picked up that organization from the Wesfarmers folks which is an industrial conglomerate this has been really terrific opportunity for us there was they are starting the is the Gallagher playbook are starting to focus on sales the way we do in our sales meetings and I see them as really turn the quarter that they were fighting three things first lack of a sales culture that were really changing Australia right in terms of the economic conditions down there obviously Australia suffered a little bit from lack of exports in China and then also there was a rate toward the right kind going on there so the kind of had three headwinds I believe all three of those are turning I believe there's stability in the marketplace on the rating side I think economic this growth is starting to come back and Australia I think the sales force is alive and well we launched a couple of new products down there, that are really good in the small business space so the trend in that we're seeing negative organic growth last year each quarter and this quarter we're pushing more towards the positive territory so a really good work by the team down there..

And New Zealand is killing it..

And then as we think about the margins for the brokerage business for the balance of the year you guys all about 80 basis points of improvement in the first order was any kind of one-off items in that or is that kind of some type of run rate to assume if we kind of see a consistent level of organic growth..

I don’t know if I can say it's a run rate or not, on obviously if you don’t have 3% organic growth we’ve said it's pretty hard to expand margins. One of the things about it in the first quarter is that contingents have a large impact on that.

But in our margin expansion in the first quarter again relative to last quarter last year same quarter if you look at the margin expansion without contingents you get about half of that expansion that feels more logical to me than a full 80 basis points..

Okay and then in terms of the deal for the acquisition front the Q1 you had mentioned seasonally a weaker quarter in terms of transactions, last year the Q2 was your strongest quarter would you expect that to be the case again the second quarter just had as a pipeline of coming deals. Thank you.

We have closed four additional deal since the quarter ended so we've got 12 done for the year and the pipeline is robust. Whether or not they actually close in the second quarter third or fourth every single deal has its own life, it has it's lifespan but we've got a very solid pipeline..

Our next question is coming from Sean Dargan of Macquarie. Please proceed with your question. .

If I can follow up on Elyse's question about Australia and tie that to a comment in the press release about cycle bottoming in select geographies outside the U.S.

I know that you were experiencing negative organic growth in Australia I believe that was the only geography in the world you were doing so, is that item in the press release specifically talking about Australia?.

Yes Australia and New Zealand in particular..

And then in the shareholders letter with the March annual report, they mentioned trying to export the MMA market to the UK and it appears to me that's essentially what you've already been doing kind of creating a roll up business there, do you expect any competitive threat from that, I'm just curious what your thoughts are on that.

We're really happy with our position in the UK.

If you remember just three years ago we can really have the retail presence in UK at all, today we’re one of the five largest players in that market, that group has come together very well the rebranding has been done, it's all Gallagher now, you recall it was all Oval, Giles and Heath [ph] and so we're Arthur Gallagher across about 70 outlets through the UK and yes, it's a competitive marketplace just like the United States, Canada, Australia, New Zealand but we think we compete pretty..

Yes I think it's nice affirmation of what we saw too that there is good opportunity in the retail space in the UK and I think there is lots of opportunity there, there is still some private equity owned firms there, they are going have to do something as time comes up and I think people will realizing better to be with a strategic with an independent or private equity owned so we're seeing terrific opportunities there.

Our next question is coming from Kai Pan of Morgan Stanley. Please proceed with your question. .

This is [indiscernible] for Kai Pan.

First I just want to go back to the organic growth, so Pat, what has changed since December now that you are expecting even higher than to 2.5% to 3.5% organic growth so what has changed from the December?.

The marketplace I think it's probably a little bit more stable and I thought it was going to be coming into the end of the year. October November last year we saw probably a little bit softer market than we're seeing today.

Property is soft no question about especially on the cat side but probably a little bit more stable market and I think our closing ratios is up just a bit. We've had very solid pipeline of new business opportunities and our team is doing very well new business..

I think also to add to that, the second quarter is our highest property quarter for us.

As you look at your models I don't know if I would necessarily assume that it will be the same over the next three quarters you might want to caution yourself a little bit on the second quarter because the property rates but also I think just since the November and December this is a stable environment and I think our clients are having the opportunity to build -- see the value that we bring.

In a stable environment we outshine a lot of our other small competitors in particular so that when Pat is talking about our hit ratio being better that's what we're seeing there..

And I terms of risk management segment, the organic growth slowed from 4Q, was there anything specific and on top of it the margin expansion was still strong over 100 basis points, so even with the mid-single-digit organic growth in that segment you can post a strong margin for the rest of the year?.

Yes to answer your question backward, yes, when mid-single digits we believe there's an opportunity to still that our 17% margin target in each of the next three quarters in terms of which is expansion over last year.

In terms of what's happening on the organic side if you go back to look at our supplemented over time there have been some periods where Gallagher Bassett has growth has been in the higher 5% or 6% range and jumps up to the 10% or 12% and the reason why is that as we look at some larger accounts they typical will incept on January 1 or on July 1 and there are sometimes where they -- we get them in the pipeline in 2015 hoping that the incept on January 1 but switching over to us can take some time.

So we see more new business incepting in July 1 this year than let's say maybe in the past where it incepted on January 1. So it's a step a little bit of a step function type business some of these are pretty large accounts we're seeing we had 6% growth in the U.S.

Australia is largely flat at this point but again there's a big programs that are coming up for proposal over the next couple of years down there..

Okay and then last question on headcount, I think I saw headcount number go down and that’s probably first time in a long time, was there something specific there or is this to maintain margins, expenses?.

I think what you're looking at is a headcount on the brokerage side dropped about 45 heads between since the end since the last period yet we still had acquisitions that might have added a 100 or 150 so we're probably net backwards 200, its largely as a result of our integration efforts, our productivity initiatives, most of that we didn't have big layouts most of that is just through natural exits that happen in the business but it just shows that we're getting more productive every day..

Our next question is coming from Jeff Schmidt of William Blair. Please proceed with your question..

Quick question on the wholesale business and apologize if I missed this but how is that doing from an organic growth perspective given property prices I guess is that about 20% of the brokerage segment?.

It's a little less than 20% wholesale is up about 2% for the quarter and yes they had headwinds on property side and you need to know that in the second quarter is their biggest property quarter..

Right. Right. Okay.

And then in the clean energy segment are you seeing volume or guess consumption rather from coal plants is being affected of all I know there's distress in the industry there's bankruptcies what's the outlook there?.

Yes let me tell you there are three answers in that question first when it comes to the bankruptcies most of those when the coal mines go bankrupt it's usually a holding company bankruptcy but the mines are still operating because they have contracts with have to continue to deliver coal on and a lot of these utilities have had required to take contracts, so the call is still moving even though the holding company might be bankrupt, I think there has been five of them in the last year or so, as they restructure and make themselves more efficient.

Second of all the power plants as you recall when we put our clean energy plants and the power plant we put them earlier in the dispatch curve so when we do our plants these are plants that are more likely to run unless they are less efficient plants that only get dispatch during the high peak loads.

We're at the mercy of the weather, we did have a little bit of a warmer winter that did impact us a little bit but we still see that we're on track. This program runs through 2021 so long-term displacement of coal to other fuels it takes a long time to displace implants and this program goes justly for another five years.

And truthfully the amount of displacement that’s happened over the last eight years probably is not likely to repeat because they just placed to natural gas and the plants that they couldn't and they really can't move these plans to natural gas that we're offering them efficiently and effectively the next five years.

So in summary I was going to say I think we're still well-positioned I still see us having 50% growth in their net earnings this year we still have other plants that we're working on putting in place that should continue to expand our earnings as you look into the future, so overall I would say it's a steady state business..

Our next question is coming from Bob Glasspiegel of Janney Capital.

Was curious on Gallagher Bassett were you saying your budget a little bit on your 17% margin expectations given the first quarter.

No.

I think the guidance was 17% margins for the year and you came in above that so I was just wondering whether you're still managing the 70% margin for the year?.

Yes the way that their compensation raising, increases happen, it doesn't happen in the first quarter so you'll see that be more like 17% going forward so 17.6 on a couple of hundred million dollars of revenue might have been $1 million less than of expense than we expected initially but I feel 17% in the next three quarters is achievable.

Okay so you will beat 17 for the year if you do 17 for the next three quarters just for modeling purposes, just want to make sure or you'll get to 17 for the year just.

That's right Bob.

I just a macro question Pat your good sort of talking about the environment and what implications big companies mean , [indiscernible] retrenching indicating the volume is not an objective and underwriting is they are going to write less today and with Chubb and ACE going through big merger we got three of the very big players in some state of transition, does that have any positive implication to the environment maybe, a reason why you’re a little bit more optimistic about organic for the year or is it all just execution versus macro?.

I think Bob, for us it's more execution than it is macro. Those are big trading partners for us. In each instance we've got deep, very meaningful relationships with each of them. Each have their own issues that they are dealing with but our trading relationship is very strong and continues to grow at all three of them.

So it's really not those the driving the market I think really, we know that 90% of the time when we compete, we compete with the player who's smaller than we're, in our 32 in the United States are 32 areas of focus, our verticals are very strong.

We know those businesses and we think we're probably cover than anybody in any of those and new business is very strong..

Just pushing out it's a little bit tighter so you're saying you're not seeing zero ID changing their underwriting behavior and willingness to cut prices to hold onto a new account? Sort of underwriting is normal for them..

Yes I think what I've been impressed with over the last five years is we've had ups and downs in various lines of coverage that have gone soft or hard keeping know what those lines of coverage need.

But over the last five years we’ve see more discipline on the underwriting side than I’ve in my 40 year career and I think that remains I mean, I think it has to property clients deserve a decrease. The wind hasn't blown so there should be no shock to anybody that kept properties off.

When you take a look at workers compensation depending on the geography, the state what have you, when it needs to go that goes up a bit, when it needs to come down it comes down a bit, DNO [ph] same sort of thing.

So what we're seeing is many cycles within the lines of coverage based on what really needs to happen to those lines and I think that's a level of discipline that the industry has enjoyed for five years that I've never seen before.

So I think it's more the same of that Bob, yes those three companies have issues that they are dealing with but by and large, they are trading on the street they're doing very well..

Our next question is coming from Mark Hughes of SunTrust Robinson Humphrey. Please proceed with your question..

You describe a stable environment in the P&C sector does that mean pricing is relatively stable or just kind of stable down a few points?.

I would say pricing is relatively stable, I mean look any account you can go into any of our offices and go to a sales meeting and you're going to hear a story of somebody getting a 25% decrease and someone is going to be shocked by it and what have you.

But when you look at our book of business across the entire platform and you see that really rate and environment and rate exposures cost us a half a point well that's no soft market, I mean you can have an account that gets knocked down big time but by and large when you look across the entire platform it's pretty stable situation with the exception of the property business and to some degree transportation..

And then what was your with your comment about wholesale outside of property understand that is the how about otherwise?.

It a strong, we're good. I mean casually lines and with the exception of energy and natural resources our wholesale business is very strong as is our MGA business..

[Operator Instructions]. Our next question is coming from Quentin McMillan of KBW. Please proceed with your question..

Doug just to talk about [indiscernible] quick it was stronger in the quarter in terms of tax utilization, I assuming that's just because of the stronger earnings that you had in what is a sort of the seasonally weaker earnings quarter for you, first is that the correct way to think about it and then secondly and I apologize for asking such a long dated question but you guys have sort of a plan for post-the ChemMod tax credits in 2021, 2023 timeframe of what you may want to do to recover that tax strategy?.

First question yes it was because we had a stronger first quarter that caused us to recognize a little bit more when you have more organic growth you have more earnings and therefore you recognize a little tax credits, so that’s a first one.

Longer term, even though when we talk about at the end of this program to generate credits being expired in 2021 our plan is to hit the end of 2021 with a long glide path of having a balance sheet with a substantial amount of credits in it that can continue to reduce our tax rates well into the 2020s so even though the generation phase maybe over in 2021 the actual utilization of credit should go up I think right now we have about 375 million that's in our balance sheet right now, we're using about $100 million a year I'd like to have 5, or 6, 7 year balance sheet by the time we hit that point.

So I think now what we have is opportunities after-the-fact? Listen we thought at the end of section 29 which was the precursor to section 45 credits that we were done and there is something else the government does in order to foster tax credits, the government really understands that better energy is a good policy and therefore they want to incense commercial enterprises to go out and develop new technologies to better the environment.

So I think there could be another program at the 2021 but we got five years to work on that but in terms of the cash generation look at this as well into the 20s..

Okay great long-term and you guys will replace it with something when the time comes is sort of the short answer of it?.

We've done it only for the last 20 years so I think there's something else out there.

And then one other question just on competition, there was an article or two on liberty mutual talking about unbundling their insurance and claims services to potentially lower claims cost for their clients, would that create kind of a more competition for Gallagher Bassett, a headwind on either the margins or the growth or how do you guys view that?.

It's exactly the opposite of that Quentin, this is a great opportunity for Gallagher Bassett the marketplace has been an unbundled marketplace for large accounts for the last 20 years and liberty has unbundled at times as well.

This is just more opportunity for GB to showcase their wares in terms of being able to convince clients that using Gallagher Bassett will lower their claim cost and we’re pleased that liberty is coming that direction.

We have a lot of carriers that are recognizing their claim outcomes are better with Gallagher Bassett because Gallagher Bassett and customize the claim delivery to the customer not necessarily to the way that carrier wants to end to be able to customize the delivery of the service that we provide will deliver better claim outcomes the carriers recognize that we do it for a lot of carriers and we’re really good, when we’re paying about $10 billion a year of claims primarily in the workers comp or general liability space we’re experts in that business and our outcomes are better so this is another acknowledgment by a carrier that there are some things that we might feel be able to do better than them and so I think this is a terrific opportunity for us as these carriers recognize that we can do things for them..

In addition to beneficial outcomes you think that your pricing might be more competitive even more beneficial for the clients who might want to use the Bassett services.

Yes..

90% of the claim goes on the claim cost, only 10% goes out in the adjusting cost so if you can reduce the 90% by a little bit you can sure have to pay for a lot of the 10%..

We are showing an additional question in queue from Charles Sebaski of BMO. Please proceed with your question..

I was curious about the UK business and what's going on particularly the announcement of compass potentially looking at and MBO just overall what's going on? What affect that might have? Any color would be appreciated.

Yes we did that on this before Charles but I'll be glad to do it again we're very pleased with the progress we've made in the UK especially on our retail side.

our specialty business is second to none there and our London broking business is really top of the game, retail you will recall is acquisition of three players that we put together over the last couple of years, it's going extremely well we had about 3% organic growth in the quarter on our retail business it's all rebranded from Giles and Oval and Heath to Gallagher, organic growth is on the uptick and we see really good things happening there..

Yes in terms of the comp, the revenues on that was a less than $5 million so it's not a big deal now that was the network of relationships that were provided to the UK retail space that came from either Giles or Oval I can't remember exactly which one but truthfully our guys don't need a network now because they are part of Gallagher and they can trade within Gallagher, they can get the resources and the capabilities that they need and so compass really is an opportunity for smaller retail brokers and it doesn't really work inside of Gallagher so our selling that off is a no never mind to be honest..

Okay so 5 million bucks decrease going forward and that's about it for that?.

Revenue.

Revenue?.

Right.

We do have another question coming from Josh Shanker of Deutsche Bank. Please proceed with your question..

Two questions, one is the headcount reduction I assume this mostly integration can we talk whether those further headcount reductions for integration going forward till the end of year that we will notice and to our market any thoughts for our RPS now that Willis and Miller have hooked up together what might be for the competitive market there.

Going backwards when it comes to the Willis and Miller dealer is the fact that RPS trades primarily with other than the large broker so it doesn't really have much of an impact to RPS I would say there's nothing there when it comes to the headcount I think because we're seasonally smallest in our acquisitions in the first quarter you see the decrease in headcount more so I think that when you look at going forward the price increases in headcount is our acquisitions are coming on but underlying yes we're controlling our headcount through attrition through becoming more productive and so if we didn't have the rolling of acquisitions you probably see decrease in headcount just from natural attrition and this is we're actually getting better every day..

Okay I appreciate the answers as always room buyback inasmuch as let me know.

What's on in the quarter offset the shares that we used in tax-free reorg so it's out there..

We're showing no further questions in queue. Mr. Gallagher do you have any additional or closing comments at.

Thank you very much everyone for joining us this morning. We really appreciate it. We’re excited about the results for the quarter and look forward to a strong 2016. Have a great day.

Ladies and gentlemen thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day..