With a combined revenue of $21 trillion and $2.1 trillion in profits, the 2026 Fortune 500 is the definitive list of America's largest companies.

Fortune 500

The 300 companies on this year’s list brought in over $12.5 trillion in revenue for the latest 12 months, with the median revenue figure at $24 billion.

America's Most Innovative Companies

Almost $20 trillion in revenue—and a record-breaking $1.87 trillion in profits. Introducing the 2025 Fortune 500, the definitive list of the biggest companies in America.

The 300 companies on this year’s list brought in over $12.6 trillion in revenue for the latest 12 months, with the median revenue figure at $22 billion.

The Fortune 500, in its 70th year in 2024, ranks the biggest U.S. companies by revenue.

The Fortune 500, in its 69th year in 2023, ranks the biggest U.S. companies by revenue.

This year’s Fortune 500 marks the 68th running of the list.

This year’s Fortune 500 marks the 67th running of the list.

One of the largest insurance brokers in the world, the firm offers brokerage and risk management services to various clients.

This year's Fortune 500 marks the 66th running of the list.

F500 2020-429-Arthur J Gallagher

A Rolling Meadows, Ill.-based insurance brokerage, Arthur J. Gallagher has 33,300 employees.

This year's Fortune 500 marks the 65th running of the list.

This year's Fortune 500 marks the 64th running of the list.

This year's Fortune 500 marks the 63rd running of the list.

This year's Fortune 500 marks the 62nd running of the list.

This year's Fortune 500 marks the 61st running of the list. Wal-Mart claims the top spot again. See who made the list.

Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

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Arthur J. Gallagher &amp; Co. is a global insurance brokerage, risk management, and consulting firm. The company provides customized property and casualty insurance, risk management, and consulting services to a wide range of clients worldwide. Founded in 1927, the company operates in 130 countries and territories.

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Q4 2024

Arthur J. Gallagher (AJG): Company Profile, Stock Price, News, Rankings

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Arthur J. Gallagher

arthur j. gallagher

Good afternoon, and welcome to Arthur J. Gallagher & Company's Fourth Quarter 2025 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 today's conference call, including answers given in response to questions, may constitute forward-looking statements within the meanings 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 to the information concerning forward-looking statements and risk factor 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 reconciliation 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 & Company. Mr. Gallagher, you may begin.

Thank you. Good afternoon, and thank you for joining us for our Fourth Quarter 2025 earnings call. On the call for today is Doug Howell, our CFO, and other members of the management team. We had an excellent fourth quarter and a terrific year. Our two-pronged revenue growth strategy (that's organic and M&A) delivered revenue growth of more than 30% during the fourth quarter. That includes organic growth of 5%. Adjusted EBITDA growth was 30%, marking our 23rd consecutive quarter of double-digit growth. So, a great quarter, highlighting our durable value creation strategy that drives consistent double-digit growth in revenue and profits. Moving to results on a segment basis, starting with the Brokerage segment. Reported revenue growth was 38%. Organic growth was 5%, in line with our December commentary. Adjusted EBITDA margin was 32.2% and ahead of our expectation with underlying margin expansion of 50 basis points.

Let me provide you with some insights behind our Brokerage segment organic. Americas Retail P&C organic was up 5%. UK and EMEA up 7%. APAC up 3%. Specialty and wholesale up. U.S. wholesale up 7%. Reinsurance up 8% and benefits up 1%. So, we continue to deliver organic growth across Retail P&C, benefits, wholesale, and reinsurance. And Doug will further unpack organic in his comments. Next, let me provide some thoughts on the global P&C insurance pricing environment. Fourth quarter insurance renewal premium change, which includes both rate and exposure, continued to increase in the low single digits. Once again, property decreases were more than offset by increases across most casualty classes. Let me break that down further. Property lines were down 5%. Casualty lines, which includes general liability, commercial auto, and umbrella, up 5%. Overall, with U.S. casualty lines up 7%. Package up 3%. D&O down a point.

Workers' Comp up 1%. Personal lines up 5%. So, many lines are still seeing increases outside of property. In fact, excluding property renewal premium change, we'd be up about 3% during the quarter. With that said, premiums are ultimately determined by loss experience, and good accounts will get some premium relief, while accounts with poor loss experience will see greater increases. Moving to reinsurance, let me provide you with some thoughts on the 1/1 renewal season. With the strong underwriting results posted by carriers during 2025, which was helped by a quiet U.S. wind season, there was plenty of reinsurance capacity to support client demand. The property reinsurance market saw rate decreases in the teens, with lower layers holding up better than the top end of reinsurance towers. We saw some continued demand for more cover and increased purchasing by clients.

In fact, despite double-digit price declines for property CAT globally, property reinsurance premiums were down only mid to high single digits relative to last year. Within specialty lines, marine and energy experienced increased carrier competition. Pricing across casualty lines continued to be broadly stable because most reinsurers remained very cautious of U.S.-focused casualty risks. Looking ahead, we expect the buyer's market will persist through 2026, absent any outsized current year or prior year loss activity. While clients are comfortable with their purchased reinsurance programs at 1/1, we believe it is likely that some carriers will explore buying additional protection to further reduce earnings volatility or support growth throughout 2026. Moving to Employee Benefits, we continue to see strong demand for our services as clients manage rising health insurance costs.

Medical costs are expected to be up high single digits again in 2026, driven by increased utilization, provider consolidation, and newer high-cost treatments and therapies. So, we are engaging with employers to help them implement innovative solutions such as telemedicine programs, wellness initiatives, and tailored benefits packages to alleviate these cost pressures. Additionally, talent retention strategies remain top of mind for many of our clients given the resilient U.S. labor market, so we're expecting another strong year of growth. Moving to some comments on our customers' business activity. Our proprietary data, which has been a valuable indicator of the economy, continues to show solid client business activity. Fourth quarter revenue indications from audits, endorsements, and cancellations remain nicely positive and were more favorable compared to both fourth quarter 2024 and third quarter 2025. And through the first three weeks of January, these favorable trends continue.

We're watching our customers' business activity daily, and we are just not seeing signs of economic weakness. Regardless of market and economic conditions, I believe we are very well positioned to grow. Our global resources, data and analytics, expertise, and unique product offerings put us in a spot to compete and to win. As we sit here today, we continue to see Brokerage segment full year 2026 organic growth of around 5.5%. Moving into Risk management segment, Gallagher Bassett. Fourth quarter revenue growth was 13%, including organic of 7%. We saw another quarter of strong new business growth and excellent client retention. Looking ahead, we are well positioned to drive new business production and believe full year 2026 organic growth will come in around 7%. Fourth quarter Adjusted EBITDA margin was 21.6%, a bit better than our December expectations.

Looking ahead, we see full year 2026 margins in the 21%-22% range. Shifting to mergers and acquisitions, starting with some comments on AssuredPartners. We are already seeing a lot of success with the AP team leveraging our products, data and analytics, insights, and tools. Our teams are hard at work integrating the 300+ tuck-ins, agency management system conversions, and training of our middle office will be in full swing during 2026. Additionally, a little more than a week ago, all of our U.S. retail operations were rebranded Gallagher. When it comes to our back office integration, we are ahead of plan, including going live on our general ledger, HR, payroll, treasury, and T&E systems. So, we remain firmly on track with our integration plans and are confident we will be able to deliver on our synergy targets.

Moving to fourth quarter merger activity, we completed 7 new mergers representing around $145 million of estimated annualized revenue. This brings our full year 2025 annualized acquired revenue to more than $3.5 billion. That's fantastic. For all of our new partners joining us, I'd like to extend a very warm welcome. Looking ahead, there are thousands of Brokerage firms across our footprint, and Gallagher is a great home for entrepreneurs looking to grow their business, add more value to their current clients, and further advance their employees' careers. Our M&A strategy is about being better together so that one plus one can equal three, four, or even five. Shifting to, let's see. Today, our pipeline is showing more than 40 term sheets signed or being prepared, representing around $350 million of annualized revenue. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher.

With a strong close to the year, let me reflect on our full 2025 financial performance for Brokerage and risk management combined: 21% growth in revenue, 6% organic growth, 26% growth in adjusted EBITDA, and more than $3.5 billion in acquired annualized revenue. Another fantastic year driven by our talented colleagues and our bedrock culture. Frankly, our culture is unstoppable, and it drives our success year after year. That is the Gallagher Way. I'll stop now and turn it over to Doug. Doug?

Thanks, Pat. Hello, everyone. Today, I'll first walk you through our earnings release and provide some brief comments on organic growth and margins by operating segment and also on our Corporate segment results. Next, I'll move to the CFO Commentary document we post on our IR website. I'll walk you through our typical modeling helpers and our outlook for 2026. Additionally, this is where I'll spend a little more time on organic and margins. Then I'll conclude my prepared remarks with my usual comments on cash, M&A, and capital management. Okay, let's go to the earnings release, to page three. Brokerage segment fourth quarter organic growth was 5%. That's right in line with the information we provided you at our December IR Day.

Since then, we've received really positive feedback from the investment community for levelizing for the quarterly noise caused by the timing of large life sales and deferred revenue accounting assumptions. That's a fantastic reflection of our sales culture to post 5% in this quarter and 6% for the year. Flipping to page 5 of the earnings release to the Brokerage segment Adjusted EBITDA table at the top half of the page. We told you in December that our fourth quarter 2025 headline margin would not be comparable to fourth quarter 2024 because, as the footnote to that table explains, we are no longer earning investment income on funds we were holding to buy AssuredPartners, and there would also be a rolling impact of M&A. The footnote tells you that was about 130 basis points.

So, the quick math shows levelizing for that gets you to 50 basis points of underlying expansion, right at the midpoint of our 40-60 basis points of expansion we estimated during our December IR Day. That's really terrific work by the team. So, I'll give you some more information on Brokerage margins when I get to Page 8 of the CFO Commentary document because this headline noise will happen in the first and second quarter of 2026 again. Sticking on page 5, fourth quarter risk management segment organic growth was 7%, right in line with our December expectations. That reflected strong new business revenues and excellent client retention. Looking to full year 2026, we continue to see organic around 7%. And then when you flip to page 6, the risk management adjusted EBITDA margin of 21.6% was a bit better than our December expectation.

As we looked forward, we see full year 2026 margins in the 21%-22% range. Turning to page 7 of the earnings release and the corporate segment shortcut table. For the adjusted interest and banking, clean energy, and acquisition lines, all were very close to the midpoint of our December expectations. The adjusted corporate line was a couple pennies less than our midpoint estimate, partly due to a non-cash unrealized FX remeasurement loss and a small tax item. Also, while we adjusted out, we substantially completed the wind down and annuitization of our long-ago frozen pension plan. Creates a non-cash GAAP expense here in the fourth quarter and will again in Q1 2026, but those reversed through OCI, so it nets to zero. But more importantly, we hit the market just right and didn't have to inject any cash into the plan.

All right, let's leave the earnings release and go to the CFO Commentary document. Starting on page 3, these are our typical modeling helpers. Most of the fourth quarter 2025 actual numbers were close to what we provided back in December, so there's nothing new here. Looking at 2026, as you build your models, please use these helpers. In particular, the estimated impact from FX and the forecasted depreciation and earn-out payable expense. Turning to page 4 of the CFO Commentary document, this page breaks down organic performance by business, and it's like what we provided for the first time at our December IR day. This view helps you see four things. First, it removes the quarterly comparability impact caused by the large life sales, and second, it removes the comparability impact caused by deferred revenue estimates.

These two items were causing a lot of quarterly noise, but as we said in December, and you can see here, they are really a no nevermind on a full year basis. Third thing this view does is it shows you the quarterly seasonality of our business, and fourth, it gives you organic growth another level down in the table. Two callouts on this page. First, in total, our fourth quarter and full year actuals in blue were in line with our IR day thinking, as shown in the gray column. Second, when you move to the pinkish column, we've wrapped up our full year 2026 organic budgeting, and our outlook is unchanged. We continue to see 2026 Brokerage segment organic growth of around 5.5%. That would be another fantastic year. So, when you turn to page five in the corporate segment, just two small items.

Our full year 2026 estimate is unchanged from 6 weeks ago, and we're now providing a first look at our quarterly estimates. That said, we do have a little more work to do on the corporate segment quarterly budgets, but full year is done. So, maybe a tweak here or there between quarters, and we'll update you during our March IR day. Turning to page 6, the investment income table. 3 comments here. First, our 2026 forecast reflects current FX rates and changes in fiduciary cash balances. Second, our forward estimates continue to assume 2 future 25 basis point rate cuts over the course of the year, 1 in April and another in September. Third, the second line of this table shows you the amount of interest income we earned on funds that we were holding to buy AP.

Clearly, that has gone away, and you can see it won't repeat here in 2026. More on the impact of this on our headline margins when I get to page 8. Staying on page 6, but shifting down to the page to the rollover revenue table. The fourth quarter 2025 column subtotal of $145 million for Brokerage came in pretty close to our December estimate. Looking forward, the pinkish columns to the right include estimated 2026 revenues for Brokerage M&A closed through yesterday, but you'll see that clearly excludes AssuredPartners. We provide a separate page on page 7 for AssuredPartners. And finally, you'll see the same info for our Risk Management segment below that. And then to this, you must make your picks for what you think might be unknown M&A that hasn't closed yet throughout 2026.

Moving to page 7, this is the same page that we have provided several times before. It shows you how we view AP. Now it includes third and fourth quarter 2025 results and our full year 2026 outlook. A few comments here. AP's fourth quarter revenues were in line with our expectations for the fourth quarter, while expenses came in a little better than expected. Some of that is a little timing between now and throughout 2026. Next, the second item, there could be some small refinements in the 2026 numbers because we're still a week or so away from having AP budgets locked down. That said, we don't expect anything significant, and of course, we'll update you in the March IR day. Third, be careful when rolling in AP into your 2026 models.

You can use first and second quarter columns as is, but for third and fourth quarter, it is the delta between the pink numbers and the blue numbers. Fourth, I also ask you to closely read the footnote. You're going to read three things in there. This table reflects the midpoint of our estimates and does not include any revenue or expense synergies. The non-cash figures shown on this page, which reflect depreciation and earn-out payable, are included within our estimates on page three, so don't double count there. And finally, you'll read that we still see annualized run rate synergies of $160 million by the end of 2026, and then up to $260 million-$280 million by early 2028. I'm also more and more comfortable there could be upside to these numbers, but give us a little more time before we update our estimates.

So, this is a page of really, really good news. Moving on to page 8. This is a new page to help you better understand items that impact the comparability of our Brokerage segment Adjusted EBITDA margins. In the past, I've done a bridge in my verbal comments to get you past the noise from the impact of FX, changes in interest income, income from cash we're holding on AssuredPartners, and then when M&A that naturally runs, lower margins rolls into our numbers. We think these tables paint a better picture than all the words we were using before. Hopefully, this will be more helpful when you build your '26 models. Since this is the first time we've provided this page, let me make a few comments. First, the upper blue table, the punchline is we improved fourth quarter by about 50 basis points.

That's all due to the incredibly hard work by the team to control our costs. The lower table gets you started on modeling 2026. The blue section first level sets 2025 by removing the investment income on funds we were holding to buy AssuredPartners and also resets for estimated FX at current rates. FX will likely change, but at least it gets you something as of today. The pink section of this table has ranges and margin impact commentary for what we see today. The punchline is nothing has changed since our December IR day, and we still see underlying margins expanding 40 to 60 basis points in 2026, and we will also begin to benefit from synergies by being better together with AP. You also see that we've added a line called unknown M&A with no estimate provided.

This is more of a placeholder for you to just think about other factors that could impact margin comparability. All right, let's go to page 9 to our tax credit carry forward page. At December 31st, we had $713 million of tax credit carry forwards, and you'll see in the footnote there that says that we have another $1 billion of future tax benefits related to our purchase of AP. The punchline from this page is the same. It creates a nice cash flow sweetener to fund future M&A. As for some modeling thoughts, when you're modeling cash flows, just assume our cash taxes paid will be about 10% of EBITDA for the foreseeable future, and that should get you close. All right, let's move to cash, capital management, and M&A funding.

When I look at available cash on hand, expected free cash flows, and future investment-grade borrowings, over the next two years, we might have close to $10 billion to fund M&A before using any stock at attractive multiples. And this is an important point. Well, we talk about organic a lot. It's worth a reminder that our M&A strategy creates immediate shareholder value through a nice price arbitrage, and it also creates long-term shareholder value through additional sales talent, niche expertise, and further scale. So those are my comments. An excellent 2025 for our combined Brokerage and risk management segments. Organic growth of 6%, more than $3.5 billion of estimated acquired revenues, adjusted EBITDA growth of 26%, and adjusted EBITDA margin of 35%, up 70 basis points this year on an underlying comparable basis.

It might be worth a reminder that since COVID hit us, every year our margins have marched higher. We're up over 400 basis points since then, and we still see many more opportunities to improve. Those are fantastic results. We're on to 2026. We have an unstoppable momentum driven by an amazing culture. I see 2026 being another terrific year. Okay, back to you, Pat.

Thanks, Doug. Operator, let's go to questions and answers.

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 are on a speakerphone, please disable the function prior to pressing star one to ensure optimal sound quality. You may remove yourself from the queue at any point by pressing star two.

Additionally, we ask that each participant limit themselves to one question and one follow-up question. Again, that is star one for questions. Our first question is from Rob Cox with Goldman Sachs. Please proceed.

Hey, thanks. Good afternoon. Hey, Rob. Hey, first question for you. There's been a lot of talk about digital infrastructure, and I think some industry participants have commented that growth in the economy, excluding digital infrastructure like data centers, is not all that inspiring. Could you just talk about how you're positioned to take advantage of digital infrastructure build-out and somewhat related? I'm just curious how your construction practices have been performing recently.

Well, first of all, our construction practices are our largest practice, and as you know, we emphasize our vertical capabilities at every production opportunity.We have very strong vertical capabilities that about 90% of our new production around the United States, actually around the world, falls into those niches. As Doug made in his comments, when we do an acquisition, one of the benefits of that is we pick up people that add to our vertical capabilities. Of course, one of those, everybody's focused on data centers as we are as well. We have the ecosystem to do the job for clients across the entire span of what needs to go into a data center construction site. You've got real estate issues, you've got supply chain issues, you've got energy issues, et cetera, et cetera.

In fact, our head of construction, Brian Cooper, was just recently quoted in Leader's Edge, which is the Brokerage magazine, about all the things that we're pulling together in that ecosystem to be able to take advantage of that opportunity. A great bit of that opportunity is just the subs and all the activity that has to go into the whole process of building it. There's a huge drain on capabilities locally just for the construction expertise. So I think every one of us that has contact with those types of clients that are going to be building those centers out, leasing them, renting them, whatever, is going to need an awful lot of cover. You're going to need an awful lot of capability in simply placing the huge amounts of cover needed, and we're right there in the middle of that mix.

Thank you. That's helpful. And then I just had a follow-up on casualty pricing and your outlook for RPC embedded in your organic growth outlook for 2026, which is unchanged. It just seems like the RPC for casualty has dropped a little bit here versus the high single-digit levels earlier in the year. Just curious if you think that's a trend. I know there's been some companies out there talking about loss trend behaving a little bit better in more recent periods.

I think that basically we're not, I mean, I'm talking from a street perspective now. I'll let Doug Howell comment on what we're seeing in our actual data. But no, we're not seeing people jumping on the casualty bandwagon here like they are property. Property is softening. There's no question about it. I think that casualty has still got a heavy focus from the underwriting community, both on the reinsurance side and the primary side. I'm not so sure that they're confident in past years' reserves. And so I'm not seeing the same kind of activity there that we see on the property side at all.

Yeah, Rob, if I read across my page on casualty renewals, maybe in 2022 at 8.4, in 2023 is somewhere between 8.4-8.7, 2024 was 8.5, this year is 8.1. So I mean, we're just not seeing in our numbers any big pullback in casualty pricing and all the systemic factors that are out there that are naturally pushing casualty rates higher. Like Pat said on some and all of them that you read about, I just don't see softening coming in the casualty lines. So what do we assume for next year as we're thinking about it? We're assuming that casualty rates will be up in that 7%-8% range.

Next is from Andrew Kligerman with TD Cowen. Please proceed.

Good evening. First question is around talent retention. We've all been hearing about the poaching, and it seems to be a big challenge for a lot of brokers out there. Could you talk about A.J. Gallagher's ability to retain its producers in particular and how you see that playing out on your organic revenue both this year and next?

Well, I think, yeah, I'm happy to talk about that. I'm very pleased about the fact that just our retention of producers has not changed against historical norms in any way, literally over the past number of years.

If you take a look at the machine that we've built that does acquisitions, I think we bring people in. Last year, we recruited through the acquisition process over 2,000 new production talents, and we're lighting them up with tools and capabilities. We like to tout the fact, frankly, that we're a Brokerage firm run by brokers. We understand the sales process. Everybody from myself on down is involved in that sales process. People know that they can reach out and get that kind of support. Everybody understands how important production is. And frankly, we pay our people to produce, and they get a piece of that, and we're very happy with that. So I'd have to tell you that our retention rates remain strong. Do we ever get poached? Of course we do.

I think that there are right ways to hire people, and there are wrong ways to hire people. We're very defensive, and we'll litigate where we feel somebody has done it the wrong way. We also do recruit from other competitors, and we always try to do it the right way. I think that my answer to your question is I simply say, number one, very stable. Number two, adding to that capabilities with headcount from acquisitions as well. Let me mention, let's not forget, about 600 young people in our internship every single year. We'll recruit a half of those or even sometimes more. That internship continues to grow. It has huge impact to the sales firepower that we bring into the company and has been a very big part of our success as an organization. I'm pleased where we are.

I'm not naive to the fact that there are people in the field trying to wave a magic wand that somehow their deal is going to be better and bigger. I would caution any of those that are enticed by that to take a hard look before they make the jump.

Yeah, just on a number-based percentage of producer retention is exactly dead flat. It's been that way since I've got us here going back to 2019, and it's dead flat on it. So we're not having any real change in our producer retention statistic. And also, you're right at the nub of it. This still is a business that needs producers to grow it and to sell it. So we think that being a broker run by brokers and having a sales and marketing mentality inside of our company is critical to maintain. We wake up every day.

We work on it. We also invest a ton of money in sales tools. Illustratively, within two weeks, our cutting-edge Gallagher Drive program, which is the digital experience that our producers can use with our clients, was on the desk of every single salesperson at AP. They're using it. We're winning together already. So the answer to this is we need people to sell, we need people to produce, and we need to keep fueling them with tools and capabilities to make them better at the point of sale. And I got to tell you, if you look at who's trying to poach people right now, they just don't have it. We do. And I think you'll see some headlines that come out about it. That's a drop of water in the Pacific Ocean. It doesn't even cause a ripple. So we're pretty proud of our culture.

We're pretty proud of the $hundreds of millions that we're investing every year in technology and data and analytics to make our folks realize that this is the very best place that they can toil and work and produce better than any other place. So we're going to lose a few people that can't see that, but we haven't seen any change in our retention.

I agree on the culture. Andrew, I mean, every chance I get an opportunity to talk about the culture, I do. I think it's one of the most important aspects of our success. And again, it's a sales culture driven by salespeople who honor the fact that selling insurance and risk management services to people is a very honorable profession.

That's very helpful color. My follow-up question is around AI and disintermediating the intermediaries.

I've been getting that a lot, and it's around kind of small commercial. Could you talk to what your thoughts are out on the horizon, how that might affect your small business production? And one thing I just want to layer on to the last question, AssuredPartners. I'm assuming that AssuredPartners is aligned with everything you just answered in my first question. Retention is very similar, right?

Very stable. Coming aboard. Very happy. We've probably met in person now, 90% of the population of AssuredPartners. We've done an outreach where about 20 of our executives traveled the field, visited offices, did town hall meetings. We attended their sales meeting in Indianapolis before the close and met over 1,000 people there. And we've had six sessions in Rolling Meadows with 3-500 of their people at each session. And I'm telling you the excitement.

There wasn't one of those where I didn't meet someone who came up to me and said, "Pat, I can't tell you how I'm excited." We wrote an account together because I had this and you had that. I'm like, "There it is. That's the magic." So yes, I think it clearly played. In fact, the nice thing about AP is that still all these toys are now new things still. There's shiny objects, and it kind of builds a lot of excitement momentum. So let me go to the AI question because I'm the old man in the room. Okay. I addressed the same thing when we had the dawn of the internet. Goodbye, intermediaries. This is all going to be done by me at home on my computer. And that showed just not to be true. Well, why is that?

In particular, in the small end and in personal lines. Guess what? Everybody has a need for some really good counsel, and they want to talk to a person about what they should do. I can turn the question right back to the investment community. Why would anybody use you guys? Why don't they just go to AI and say, "Pick my portfolio?" Because guess what? People make a difference. When that person who's a small account with five trucks and he or she is trying to make sure people are on the job and someone got sick and they're replacing that person, but they've got a commitment to build this building by a certain date, you think they've got the confidence to pick their insurance online? Even if ChatGPT says, "This is the way to go," it's just not happening.

The trusted advisor is more important today because of AI than it was before AI because everybody's confused because AI tells it it knows exactly what you should do, and we all know it lies. So if you're comfortable doing that on your own, good luck.

Yeah. I'll turn it another way on it. I think that we stand to benefit for that because if there is a product that can be sold with AI, we will likely be the ones that can put it out there and then put it out there, have AI get it to the point of sale, and then have a producer do the final piece of it. The second thing is, remember, onboarding a customer is different than servicing a customer too. So it might tell you what the best product to buy is. Let's just say that works.

But then you got to service that policy. And then you've got to handle the claims on it. And then you've got to interface with the carrier. I doubt that there's an AI tool that will sell a policy to somebody who will have a serious issue in their bar or restaurant, and then AI is going to tell AIG to pay the claim. It just doesn't work that way. There's going to have to be an adjuster there. There's going to have to be a counselor called the producer that helps them understand how the claims are paid. Maybe they can put some policies on the books, but the service load that will come along with that. Now, on the other hand, we see AI as being a terrific benefit for us to get better, faster, at lower cost.

We have spent 20 years working on standardizing our processes, centralizing them in our low-cost centers of excellence, driving the quality very high. AI is going to help us automate a lot of that. So the service layer, I think that we're going to be able to deliver a better, faster, and less expensive service offering. But when it comes to actually onboarding the customer, maybe a little bit actually servicing the customer long-term, that product's got a long way to go if you don't have a customer service rep between the technology and the customer. So we're spending a fair amount of money on AI. We're getting some really terrific results, especially in our Gallagher Bassett unit on the claims adjusting side, the claims resolution side. We're seeing some nice speed to market that we can do.

Just a lot of our back office functions could really benefit for us. Honestly, there's only three or four of us in the industry that are going to be able to devote the money into this that will actually deliver benefits. It's a terrific tool. It's not a replacement for production. It'll improve service. And I think that service will help us improve our retention rates. But actually selling insurance, I think it's going to be a long time for that to happen.

Our next question is from Michael Zaremski with BMO Capital Markets. Please proceed.

Hey, Greg. Good evening. For Doug first, on page three of the press release, you showed $882 million and $171 million of M&A divestitures and other Q4 2025 versus last year. I think that includes life sales, assumption changes, etc.

I mean, do we need to break it out? Do we need help breaking this out for us to help model the life sales and assumption changes in future periods? I know that's something maybe we could take offline unless you want to think it's worth helping us here.

Yeah. I think maybe since this is more of an annual impact, and there, but this quarterly impact is the bigger thing. Maybe we do take it offline. But maybe the punchline on this is we think about all this change from The Life sales and then our deferred revenue assumption changes. When you boil it all down and you look at it, what does it all mean?

What does it all mean? It is that had we had exactly the same level of life sales throughout 2025 as we did in 2024, and if we had had the same level of service quality improvement in 2025 as we did 2024, we improved our service considerably, just not as much as we had done in 2024. It's all going to boil down to $25 million of EBITDA. So on $4.8 billion of EBITDA this year, that's the kind of magnitude of what we're talking about in here in a lot of these quarterly ones. So we've tried to put that in a bucket, tried to exclude it from our organic growth because it was clouding the true underlying organic growth of the company because of these things bouncing around, especially on a quarterly basis.

So as you unpack it with Ray after this call, you're going to find it all nets down to a very small number.

Okay. Understood. Thank you. I guess my follow-up is just on the pricing environment and how it impacts your organic. I think you guys have some good charts showing the industry's pricing levels versus your organic going back 30+ years. And you can see that when pricing goes to very high levels, there's kind of like a decoupling, right? Your organic doesn't go to 15 or 20, but it improves. But I think more importantly, when pricing falls like it is today, your organic actually decouples and it stays usually positive.

So I'm just curious, in a market that you're describing of property very soft and, as you might say, casualty harder, is that dynamic still hold, or is there any nuances to kind of given it's a tale of two markets, property versus casualty, as we think about 2026 and further?

Well, I'm going to try to get my head around that question. So if I don't, please give me some help. But first of all, as prices are running up, you're exactly right. Of course, our revenue doesn't track directly with that. Our job, what we sell to our clients, is mitigating that increase. So that's where we counsel them on when they should opt in on coverage and opt out. And our background and our history is the whole concept of risk retention. That's the birth of Gallagher Bassett.

And when you see rates go up, the alternative market, I guess we still call it that, is one of the fastest-growing aspects of the market where people like ourselves counsel our clients on, "Don't pay the premium. Take the risk yourself." And then, of course, when it comes down, we don't tend to migrate the other way as quickly either because there is a portion of opting in. In our prepared remarks, we talked about the fact that in the reinsurance side, we are likely to see this year off-cycle some additional purchases of reinsurance. That's exactly the kind of thing I'm talking about, and that translates into the retail market as well. So in this cycle, I do think what we've been saying for the last number of years, which I think is holding true, is that you can't talk about the cycle.

We're very clear on what's happening in the property line. By the way, our clients deserve that. Property went up through the roof, and underwriters needed the premium. Now they're getting a decrease on that because it's been a benign loss year. If you take a look at the other cycle, casualty, we're still seeing increases there because maybe the capital that's been deployed isn't necessarily adequate at this point to give discounts. What we're seeing is cycles within the cycles. D&O, as you might recall, over the last three or four years, came down quickly. Capital flowed into those rates three or four years ago and brought the price right down. Now you're seeing it maybe bottom out and start to increase again.

Workers' Comp, interestingly enough, has been pretty flat for a decade, which I find very interesting given that medical indemnity is such a big part of that product. It shows you what managed care has done for the line. Then you have casualty separately and property separately. So I don't know if I actually got my head around your question, but you add all those together, and what you've seen in the past will probably reoccur this time as rates go up and down in all these lines. Okay. I think you helped. I was just trying to see if maybe this cycle could play out differently, but it sounds like it'll be similar to the past cycle. It will play out differently because you got to look at the individual lines.

So every quarter we report, pay attention to what we're seeing in casualty, what we're seeing in Comp, in property. And sometimes the property will break between the cat-exposed property and just general property. And we'll break that out when that happens.

Yeah. We tend to talk a lot about Cat property rates. But if you throw it all in a bucket with all the other property rates, and let's not discount the impact of fire and convective storms, etc., our property book is down the pricing is down 4% or 5% overall. So this isn't a 20% down market. When you look at what was happening and when carriers didn't have the deep insights into their loss cost trends as they do now, you had a little more volatility in it.

I believe that sales folks that have the tools that we do, if you're going in and trying to talk to your customer about a 30% rate increase, now I'm going to talk to you about kind of a flat renewal. You can see our wares. You can see what other services you get from you. You get more from Gallagher. So I think that our customers will be wise. They'll opt back in for more coverage, and that will stunt the decrease a little bit in property rate declines.

Thank you. Our next question is from Elise Greenspan with Wells Fargo. Please proceed.

Hi. Thanks. Good evening. My first question is on margin, right? I know, Doug, you went through the new page in your CFO Commentary. It seems like the margin, if I add up the pieces, it's right around 60 basis points in 2026.

Appreciate the underlying component has been unchanged. Obviously, a lot of pushes and pulls. When we think beyond 2026, obviously, I guess M&A and interest rates and fiduciary could always come into play. But is it right to think that just from a forward modeling perspective beyond that, that we'd kind of be back into the thinking of right 4% plus organic and kind of that 50 basis points of underlying margin expansion or something within that ballpark?

Yep. Your recollection is right. That's what we said, and we still believe that. We believe that you can start seeing some margin expansion at 4%, and then you go up 5%, 6%, 7%, you get more margin expansion.

The other thing, too, is that I think you'll really see we're going to have noise in the first two quarters of next year with the lost interest income on funds we're holding for AP. So that's going to cloud the headline story. So a little patience with us so you can cull that down and not really get to that underlying expansion. But also, we're going to start seeing the synergies come through from the AP acquisition. And that's going to also we'll break the pieces out. Probably can do that pretty well in 2026. By the time we get to 2027, it might be hard for me to tell you whether that savings and did we get better because of legacy Gallagher, or did we get better because of legacy AP coming together.

So to your question about looking out for 2027, the numbers there get you to a pretty good spot. But just remember, there could be another $100 million-$120 million of cost savings that we get out throughout 2027 so that by the time we get to early 2028, we're kind of at that $260 million-$280 million additional profits or additional EBITDA accounted. So you're looking at it the right way. Your recollection is that we still see that this is the same environment that we can improve margins starting at 4%. So in answer to your question, I think is yes to your question. But with all that background, I think that we've got two levers that are going to be pulled, or just the natural increase as we grow more, and then also the rolling synergies of AP.

Thanks. Then my second question, I guess, goes back to organic and maybe a slight follow-up on Mike's question, right? So you guys changed the definition, right, to tie to what you outlined in December. But I think the two pieces, right, the life and the revenue assumption changes probably would have been a negative 3 in the fourth quarter, which feels large. I guess it would have been kind of net breakeven in the other three quarters. So it feels like from what you said, Doug, it's like $25 million of EBITDA. So these things are like $70 million of revenue and maybe more pronounced in the Q4. I just want to make sure I'm thinking about this correctly. I guess maybe it was the higher end of what you guys had guided in December.

And I guess even if these things bounce back, right, they'll stay in the core commissions and fees and be backed out, and there shouldn't be that big of, I guess, overall EPS and revenue noise.

Yeah. Let me see if I can unpack that a little bit for you. First of all, the life sales in the fourth quarter came in at -1, and we were guiding 0-1. And then the deferred revenue came in at -2 versus a -1-2. So it was kind of within the range of estimation that we had there.

I think it's important to understand, though, that the 2% for the deferred revenue assumption changes, if we updated our deferred revenue assumptions pro-rata throughout the year versus doing it on a quarterly basis, kind of like annual reserve reviews that the carriers do, it's a very laborious process. It takes a long time. There's lots of surveys. You'd spread that, the 1% for the full year across four quarters, and it would have been 25 basis points of impact. So the way you have to think about it, this table plugs and gets you to what do we believe our underlying organic growth is. What's the business running? And we saw it running 5% in the fourth quarter, and we see it running in about the 5.5% range for 2026, 6% for 2025 in total.

So you have to think about this as a quarterly discussion, not an annual one.

Our next question is from Tracy Benguigui with Wolfe Research. Please proceed.

Thank you. Good evening. Sticking with organic revenue, there were some areas within Brokerage in the fourth quarter where you were ahead or below your plan, even though Investor Day was in late December. Can you add some color on your experience within specialty U.S. wholesale, where you were somewhat ahead in reinsurance, where you were behind? And sticking with reinsurance, if you could add commentary on how 1/1 renewals may play into organic revenue for 2026.

All right. Let me tackle that. First of all, when you talk about the reinsurance number, we were forecasting about 10% organic growth, and it came in at 8% for the fourth quarter.

It is an extremely small quarter for reinsurance in terms of dollars. The difference between that 8% and that 10% is $1.5 million. So when you think about the degree of estimation that can change on a percentage, that's what's causing it. I think you had another question about specialty that came in a couple of points better. I think that we had a really good wholesale month, and it came in strong at the end of the year as we were putting some placements to bed. So again, it was probably another $4 million or $5 million of revenue, something like that. So the degree of estimation risk around a percentage point on some of these is pretty small. I think notably, though, we thought we were going to do 5% in the retail P&C. Well, that's a $3 billion business, and we came in at 5%.

So what we thought on the big business, the law of large numbers helps us get those numbers a little bit more accurate, so to speak.

And just to follow up as well, I think the 1/1 reinsurance renewals were a little bit worse than what was expected at Investor Day. So how does that play into your guide for 2026? I don't know where you picked that up in our commentary. Is there something you heard?

That's wrong. Yeah. I don't think market's softer, but I don't think our performance is weaker. People are opting in and buying some more coverage. I just want to make sure we said it right.

Okay. So that piece is helpful. You reiterated your prior remarks of $10 billion to deploy towards M&A without the need to issue stock.

So what I found is I looked at the bottom of the top 100 brokers, and we estimated that it would take more than 65 deals to exhaust that full $10 billion of funds. And that number rises if you focus on real micro targets with less than $20 million of annual revenue. So that's just a lot of deals. The playbook is great, but I'm wondering how feasible it is to close on a large volume of deals. And if that doesn't transpire, how would you deploy any dry powder?

First of all, let me address the deals. One of the things that I think we have that a lot of other firms don't is we've got people in the field who have done deals already.

We now have hundreds of offices around the country organized in regions and zones, both on the property casualty side and the benefit side. They're out talking every day to that exact population that you're talking about. The ones that are $1 million, $2 million, we don't even announce them. We bring deals to the table like that literally every week. So what we've got in terms of the ability to vacuum up, hoover up a lot of these littler brokers is, I think, a very unique opportunity as they begin to realize that they don't have the tools. They have one or two big accounts they want to take care of, and we're a great place to build their career or their family's career. At an IR Day sometime, I might be able to address actually the people that have taken advantage of that opportunity.

And then we're ready and willing to talk to the big ones. And when you take that dry powder, having just spent $13.5 billion, and realize that there just aren't that many people in the marketplace that can do that, I think we've got both ends of the spectrum covered better than anyone else in the market. Yeah. Let me give you some other stats. You go back to 2014. We did a total of 59 deals in 2014 when we were half as big as we are. We can do acquisitions in Canada, in the UK, in every single line of business. So being able to do 60 deals, we did 50 what did I say? 59 in 2014. We did 58 in 2012. We did 46 in 2018 and 2019.

And that doesn't include the $1 million or $2 million, the smaller ones that we kind of talked about. But these are just on the sheet that I have here of anything that side. So I believe that we have substantial opportunity to continue to clip off 50-75 deals a year and not even blink. And Doug mentioned it's a global practice. It's a global opportunity. There's $7 trillion of premium floating around this globe spreading risk. Those are Swiss Re numbers. We touch about $250 billion. What do you think the opportunity is? It's huge. The other thing, too, is so many of these agencies are run by baby boomers that don't have succession plans in place. I think that we're going to get our fair share, 60,000 of these brokers around the world.

If we can clip off 75 a year, I have confidence in the team that they'll be able to. Look at the numbers that are put out by. I can't do them off the top of my head and know to have them from you, but we're probably approaching over 900 acquisitions this year that have been announced. And pick those up from MarshBerry and Optis Partners and others.

Arthur J. Gallagher (AJG) Q4 2025 Earnings Call Transcript

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