Arthur J. Gallagher & Co. (AJG) Earnings Call Transcript & Summary

Good morning, and welcome to Arthur J. Gallagher & Company's quarterly investor meeting with management. [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 investor meeting include answers given in response to questions may constitute forward-looking statements within the meaning of the securities laws. These forward-looking statements are provided in the spirit of the SEC's request that companies provide investors with as much forward-looking information as possible in the midst of the COVID-19 crisis. They are subject to certain risks and uncertainties discussed during this meeting or described in the company's most recent Form 10-K and subsequent Form 10-Q filings. In particular, COVID-19 has created significant volatility, uncertainty and economic disruption that may impact our forward-looking statements. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements. It is now my pleasure to introduce J. Patrick Gallagher, Chairman, President and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

Thank you. Good morning, and thank you for joining us today for our quarterly investor meeting. It's our second time doing this meeting virtually, and we think it's a nice opportunity for investors to both get up to speed with the Gallagher story and for those that have followed us for some time to get an update on our business from when we last spoke with you late in July during our second quarter earnings call. The format will be similar to our June Investor Day. Each of our business leaders will speak for 7 minutes or so describing their business, how and where they compete, while touching on topics like the rate environment, organic margins, the merger and acquisition pipeline and efforts to improve productivity and invest in quality. Our leaders will also go deeper into what they are seeing in the third and fourth quarters, and Doug will wrap up with some financial commentary. Our prepared remarks should last around an hour in total, and then we will open up the line for questions and answers from the group. Before we begin, let me start by saying the health and safety of our colleagues continues to be our top priority. Our division leaders won't be commenting individually on our efforts in the interest of time, but that doesn't mean it isn't extremely important to each and every one of us. Among our 33,000 employees, we've only had a few serious cases of COVID-19, all contracted outside of our offices, but even one is too many, and our thoughts go out to them and their families. I'm extremely pleased with how the team has performed during the challenging period, continuing to service our clients, sell new business, look at merger and acquisition opportunities, and most importantly, the teams are excelling together even while physically apart, thanks in large part to our bedrock culture. Even while working virtually, we are helping our clients navigate the current crisis. Many businesses are hurting, and the cost of risk is increasing. Our talented professionals excel in times like these. We provide creative advice and solutions, combined with deep product knowledge, superior carrier relationships and analytics and other data-driven insights that our primary competitors can't replicate. Remember, about 90% of the time we're competing against a smaller broker. We believe the pandemic, combined with an already difficult market environment, is exposing weaker competitors and leading to a flight to quality. Financially, we're delivering on our objective to generate adjusted EBITDAC during 2020 substantially better than last year, and you saw we delivered on that in a big way in the second quarter, up 30%. Since our first quarter earnings call in April, we've been saying that our cost control playbook could provide substantial quarterly savings. We saved about $74 million in the second quarter, and we are confident we will save between $60 million and $70 million in the third and fourth quarters. I'm pleased with our team's execution. Doug will dive deeper into our progress during his comments. Each member of management will give you detailed thoughts on their business, but let me give you a global perspective on a couple of topics. First, the P/C pricing environment; and second, exposure unit changes due to COVID. P/C pricing around the globe continues to rise and increases are stronger each month as the month goes by. When I look at our global P/C book, rate is up about 7% to 8%. Property remains the strongest line of business, up 13%. Next is professional liability, up over 10%. Other casualty lines are up mid-single digits and even workers' comp is modestly positive. Australia and New Zealand are the only exceptions to this trend. And while rates are still increasing, up low single digits, the increases we have seen in 2020 aren't as strong as we saw in '18 and '19. Capacity is shrinking, but risk can still get placed. In some lines, such as public D&O, umbrella or excess casualty, overall policy limits offered and bound by carriers have contracted compared to previous years. Terms and conditions are becoming more difficult. For example, carriers are demanding higher attachment points for umbrella cover. So I see rates continuing to increase well into 2021, loss costs are rising, mid-sized catastrophe events appear to be increasing, the U.S. hurricane season is as active as I can remember and carrier investment returns are low and will likely stay that way for a longer period of time. And that is before you tally up any COVID-19-related losses. I see a strong case for underwriters to push for even more rate. While some are calling it a hard market, I see this as an increasingly firm and difficult market as most risks can still get placed. Turning to exposure units and new and loss business trends, here's what we are seeing in our book of business over the last 2.5 months. First, policy cancellations from outright business failures are no higher than historical levels and in some places, even lower than historical levels. Second, the net amount of endorsements, premium audits and other midterm policy adjustments have improved each month. Since hitting lows in April, we were at pre-COVID levels in July, August and thus far in September. We're also starting to see more favorable policy endorsement activity as customers restart their businesses. Third, unemployment levels have caused only a modest decline in covered lives in our customer base as employers are providing coverage during furloughs, and the unemployment seem to be purchasing -- the unemployed seem to be purchasing COBRA. Fourth, client retentions are at pre-pandemic levels and in some cases, better. Fifth, while nonrecurring business sales are causing a point of organic headwind, other new business production is similar to prior years. So I'll now foreshadow some punchlines you'll hear from the team today. You'll hear Mike Pesch tell you our U.S. retail property casualty business is doing quite well with solid new business and retention and premium increases across most lines of business as rate continues to mitigate exposure unit declines. Tom Gallagher will tell you that our international P/C businesses are holding up well, too, with some outperformance in Canada and the U.K. New Zealand saw its biggest new business month of 2020 in the month of August, while Australia has been a little bit slower to recover. Then Joel Cavaness will highlight the strength we are seeing in our open brokerage wholesale intermediary risk placement services. In addition, Joel's MGA and program binding businesses have also returned to growth off lower second quarter levels. New business and retention are similar, if not better, than last year and rate increases here are up double digits. Bill Ziebell will then talk about our employee benefits and HR consulting business. Our clients' businesses are holding up okay. Client retention remains solid, but we are seeing a small slowdown in new business activity due to carrier premium holidays. Covered lives are naturally down, but even in the last few weeks, there are some green shoots. Finally, Scott Hudson will take you through our third-party claims administration business, Gallagher Bassett. The number of new claims arising from workers' compensation and general liability injuries have bounced off their April lows as customers have reopened for business. However, with many clients still not operating at full capacity, claim counts haven't yet reached last year's levels. While 2020 revenues are still feeling pressure, confidence is high that our full year 2020 EBITDAC will come in similar or even a little better than 2019 due to our cost control efforts. Doug will then tell you what this means for our third quarter and give you our current view of what we think will happen in the fourth. Bottom line, we believe we can grow our combined brokerage and risk management segment EBITDAC double digits over 2019 levels. Before I hand it over to our first speaker, let me give some thoughts on the merger and acquisition environment. With the pandemic, difficult market conditions and clients wanting more expertise and data-driven insights, smart owners are seeking a partner that can help them and their clients with all of the above. Throw on top of that the potential for changes in capital gains tax in the U.S., and we're seeing our pipeline of merger and acquisition opportunities grow over the past 75 days. Due diligence continues to be slow. However, it feels like the dynamics are setting up for a more active finish to the year. When I look at our merger and acquisition pipeline, we have about 40 term sheets signed or being prepared, representing approximately $375 million of revenues. While we know that not all of these will close, we believe we'll get our fair share. Okay. Those are my comments. From my vantage point, I believe we are executing extremely well in a very difficult environment. I'm proud of our colleagues' efforts and thankful for our clients' continued trust and our carrier partners' ongoing support. I'll stop now, turn it over to Mike Pesch, who's going to discuss our U.S. retail P/C brokerage operations. Mike?

Thanks, Pat, and good morning, everyone. As Pat said, my name is Mike Pesch, and I am the leader of our U.S. retail property/casualty brokerage operation. And today, my comments are going to focus on 3 topics. First, I'll provide you an overview of the business. Next, I'll discuss current P/C market conditions, including the rate environment. And then last, I'll conclude with some observations from July and August. So let me start by dimensioning our U.S. retail P/C operations. In 2019, we finished the year with almost $1.6 billion in revenues. That positions us as the third largest P/C retail broker in the country according to Business Insurance. We placed more than $10 billion of premium annually through almost 200 offices and have approximately 6,400 employees, including about 1,700 in our centers of excellence. Our operations are focused on middle to upper middle-market clients, including commercial enterprises, public entities and not-for-profit businesses. Typically, we are placing between $100,000 and $2.5 million of premiums for each of our clients. So we're generating about $10,000 to $250,000 of annual revenue per customer. So our clients range from middle-market businesses to large risk management accounts, but we also have a decent sized small commercial, personal lines and affinity customer practice. You'll find that our core middle market clients typically don't have a dedicated risk management team to buy or handle their insurance coverages, and that's important because those businesses align with our value proposition. They have needs for an outsourced risk manager versus someone who is there exclusively to place coverage on their behalf. Gallagher's value proposition is called CORE360. It's our approach where we take and evaluate our clients' risk management program. We focus on 6 key cost drivers, which are program structure, coverage gaps, uninsurable losses, loss prevention and claims, contract liability and of course, premium. CORE360 embeds our organization inside the client's business and highlights how we are different as a broker and as an outsourced risk manager, and that resonates well with our clients looking for a holistic risk management solution and advice. Our retail brokerage operations are organized around about 30 niche practice groups, specific industries in which we have developed depth, expertise and specialized insights. We see these industry verticals as a competitive advantage, allowing us to better understand the unique risk characteristics of our clients' business and provide value-added products and services to those industries. Our niche leaders are there to support our producers and to make sure that we're addressing specific risks and challenges that those industries are facing on a day-in and day-out basis. For example, take a religious institution client. You simply can't handle an account like this if you don't know anything about the distinct needs and risks of a not-for-profit faith-based organization. So we retain customers and drive new business over the long haul by providing highly tailored coverage and risk solution. That level of specialization and expertise is nearly impossible for smaller brokers to match. And that's important because, as Pat said, our primary competitors are regional and local brokers. We know from our data that about 90% of the time we're competing with brokers who are smaller than us. And our superior competitive positioning and differentiated value proposition has led to really nice organic growth in margins. Over the past few years, organic growth has been around 5%, and our retention has consistently tracked in the low to mid-90s with double-digit new business production as a percentage of our trailing revenue. Better yet, we are growing with a very high level of profitability. Adjusted EBITDAC margins are around 30% as our business capitalizes on scale and the utilization of our centers of excellence. Moving on to mergers. As Pat mentioned, M&A is an important part of our growth strategy. Our sweet spot is firms generating less than $10 million of annualized revenue. And our #1 priority is getting the culture right. We don't rush. We take our time, looking for the right fit and the right partners, teams that want to be with Gallagher for the long term. Outside of the Gallagher culture, what really seems to resonate with potential merger partners are the tools, expertise and resources that we can provide to them and their producers, and that's even more crucial in challenging times like today. Most of our merger partners are the result of relationships that we have built at the local level, so we know these entrepreneurs very well. Whether it's through our 10 regional presidents or 200 branch managers beneath them, our dedicated team of M&A professionals, this is how we build relationships. Looking forward, we have a growing M&A pipeline here in the U.S., and we continue to talk to new firms interested in joining a strategic like Gallagher every week. We saw a nice uptick in potential opportunities in July, and that has continued into August. With the tough P/C market conditions and the potential for an increase in capital gains tax next year, we think the pipeline will grow and the number of completed mergers is likely to accelerate as we head into year-end. Operationally, I believe our business is in great shape. We have devoted a significant amount of time, effort and resources over the past decade and a half focused on streamlining workflow and standardizing processes across offices, moving on to a common agency management system and leveraging our centers of excellence. As we enter the 6-month mark of the pandemic, effectively, all of our U.S. retail colleagues have been working from home and have fully adapted, including our production talent. Let me give you some examples. Our producers are leveraging more online events like webinars, town halls and product discussions to generate new client leads. With Gallagher Drive, our data and analytics platform, we can see what types of coverages clients are buying, how much they're buying and what they're paying for is being showcased more and more as a key differentiator. And we continue to win new business by working funds. Now we are seeing entire engagements from an initial pitch to close being done in a virtual environment. What's happening here is that we are able to bring our subject matter experts at the point of sale. Prior to COVID, our 30 niche experts and 500-or-so product experts would spend hours driving and flying the product to prospect meetings or attending dinner pitches. With our prospects knowing that it's unlikely we'll be coming to visit them in person, we actually have a better shot at getting our best athletes in front of our prospects. And we can pull experts from anywhere across the organization, anywhere across the globe and get them in the game, get them at the field at the right time, whether it's the first pitch in a proposal or during the late innings to help close. As an example, we recently competed on a large placement for a multinational corporation where we were able to pull from our pool of niche experts across the globe. Our pitch included teammates from the U.K., our other international operations as well as 3 different domestic offices. It was all done via a virtual environment in which we're also able to demonstrate our global data and analytics capabilities through our Gallagher Drive platform. Most of our smaller competitors, frankly, lack the expertise, data, bandwidth and culture to bring all of these capabilities together. It's really exciting for me to see our entrepreneurial culture shine bright during the pandemic. Now moving on to my second topic, the market and the pricing environment. I would continue to describe the U.S. market as firm with tightening terms and conditions and capacity in certain lines becoming difficult. Overall, second quarter price increases in the U.S. were close to 7%, with strength in property, professional liability and umbrella. And thus far here in the third quarter, we are seeing even greater increases. For example, property is up 13%; professional liability is up 11%; commercial auto, up 6%; casualty, up 5%; and like Pat said, even workers' compensation is up about 1%. Despite these increases, it's important to recognize that price increases won't all show up in our organic. Remember, our job as brokers is to help our clients mitigate increasing prices by shopping their coverages and also showing them how to tailor their programs such as increasing deductibles or reduce limits to ensure the risk management programs fit their budgets. And finally, I'll conclude with some specific thoughts from July and August organic growth and EBITDAC. Starting with organic, about 5.5% in the first quarter of 2020 and 4% in the second quarter. Based on what we are seeing thus far, I think the third quarter organic will be similar to the second quarter. What gives me confidence is the following: new business is running very similar to 2019 levels, which was a record year for us, and we have benefited from the Gallagher sales culture and a flight to quality. Retentions are also very similar to last year, but 0.5 point lower when factoring in nonrecurring policy activity. Midterm policy adjustments, including cancellations, premium audits and other endorsements, are running similar to pre-COVID levels. Most of the midterm adjustments are coming from negative policy endorsements as companies reset their coverage rather than canceling coverages entirely. We also continue to see very limited full cancellations. Actually, cancellations have improved slightly over last year's third quarter. So our clients are holding up well during these challenging times. As we look at our renewals, premium dollars, which capture both rate and exposure, are higher relative to last year. So to the extent we are seeing exposure units decline, rate is offsetting all of that decline. On our total renewal book in July and August, almost every major line of business is showing year-over-year increases in premium. The lone exception of that is in workers' compensation, which rates are modestly positive, but exposures are down relative to 2019, leading to premiums being down low to single digits. But even that headwind is relatively small since less than 10% of our $1.6 billion of revenues comes from workers' compensation. In terms of EBITDAC, as you saw in our second quarter earnings release and based on Pat's comments, we continue to save on operating expenses, savings that are coming really from accelerating our cost containment and automation projects that were in flight prior to COVID, natural contraction of travel and entertainment expenses and we have made some adjustments to our workforce, which is mainly the result of voluntary attrition. That extra workload is being shifted mostly to our centers of excellence. These savings should more than offset the slight low in third quarter organic, so we'd expect to see our EBITDAC growth be better than pre-COVID levels. In sum, despite some of the obvious headwinds, we really feel good about our business. Price increases are gaining momentum. Exposures are off the lows, and our offerings, value proposition and competitive positioning have never been stronger. Most importantly, our clients continue to weather the storm brought on by the pandemic. I'm confident that we will exit these challenging economic times well positioned, and I remain excited about our future. Okay. I'll stop now and turn it over to Tom Gallagher, who is going to discuss our international P/C brokerage operations. Tom?

Thanks, Mike, and good morning to all of you on the call. This is Tom, and I lead our global property and casualty business. Mike took you through the domestic side. So today, I'll tackle the international portion, beginning with an overview of the business. Then I'll speak to our recent performance and the pricing environment. Finally, I'll close with some data points from the third quarter thus far and an early look at the fourth quarter. So let me start by giving you a breakdown of the business. We finished 2019 with approximately $1.6 billion in international P&C revenues, and we placed more than $10 billion of premium on behalf of our clients through about 300 offices and 9,600 employees around the world. We have a diverse group of businesses internationally. And while we operate in wholly owned or substantially owned brokerages in nearly 50 different countries and have client capabilities in 100 more, our business is predominantly in the U.K., Canada, Australia and New Zealand. Like the U.S., we are focused on middle-market retail clients, and we, too, have small business, high net worth personal lines affinity and a really strong large account risk management business. We also have a leading London specialty broker and a fast-growing reinsurance brokerage business, which will be rebranded from Capsicum Re to Gallagher Re early next month. Let me break down our revenues by geography, starting with the U.K. We are a top 5 retail broker in the U.K., generating about $400 million of revenue annually. Like our U.S. counterparts, we utilize a niche specialist network and have more than 130 offices in the country, mostly in smaller cities. We act as both a retail and wholesale broker within our London specialty and reinsurance operations representing another $400 million of annual revenue. Moving to Australia and New Zealand. Combined, we generate about $350 million of revenue annually. We are the largest retail broker in New Zealand and a top 5 retail broker in Australia. And lastly, we're a leading broker in Canada, generating nearly $200 million of revenue during 2019 and operating in 7 provinces. We're building our international business following a similar path paved by the U.S. We are leveraging best practices to drive our global retail growth, sourcing and integrating M&A opportunities and using our operational excellence to capitalize on scale advantages without geographical constraints. We have found in many instances what our U.S. team is doing can be tailored, applied and delivered to our retail clients anywhere around the world. For example, outside the U.S., we have implemented CORE360 as our global go-to-market strategy and value proposition. It goes the other way as well. Our U.S. operations are adopting creative sales ideas and coverage specialisms from their international colleagues. Our capabilities, insights, thought leadership and cross-border or cross-divisional content, collaboration of webinars give us an advantage over smaller brokers, the ones we compete against most of the time. These firms can't match our offerings. Our culture is solid and resonates across borders, too. Whether in the U.K., Canada, Australia or New Zealand or one of our 40-plus countries in which we operate, our Gallagher sales culture is alive and well. Our colleagues have quickly adopted to the new work environment, and our culture is guiding our producers as they continue to win new business. Shifting to mergers and acquisitions. Our culture, support tools, access to data, analytics and specialisms are resonating with international entrepreneurs looking to take their firms to the next level. Partners who are not satisfied remaining the same, they want to be able to support their clients and grow their book of business. And many times, they're looking for long-term career paths for their people. Partnering with Gallagher can offer them all of these opportunities, and we continue to cultivate opportunities around the world. Moving to organic margins in the pricing environment. Let me walk you around the world. Prior to COVID, our U.K. retail organic was running above 4% and adjusted EBITDAC margins were pushing 25%. Exposure growth was modest, while the P&C pricing environment was improving with increases up around 4%. 2020 first half organic is running a little more than 1 point below pre-COVID levels, while EBITDAC margin has improved with some of our cost savings. On the specialty side, pre-COVID organic growth was high single digits and margins were approaching 30%. Pricing across most specialty classes was up at least 5% to 10%, and rate increases continue to accelerate. First half 2020 organic is a little lower, while margins have improved. Canada is having an excellent year with first half 2020 organic in the mid-single digits and margins around 30%, similar to pre-COVID levels. We're seeing favorable pricing with rates up high single digits across most classes driven mostly by property and commercial auto. Moving to Australia and New Zealand. First half 2020 organic was in the low single digits and margins were hovering north of 30%. Relative to pre-COVID levels, organic is down from the 7% we reported last year. Most of the difference between years is market-driven. In Australia and New Zealand, we're seeing rates much higher in 2019 than we are seeing today, which helped growth last year. EBITDAC margins here are nicely above 3%. So let me finish up with some third quarter observations. Overall, I'm seeing new business 1 point lower than third quarter last year. Retentions 1 point better and no significant impact from midterm policy adjustments. By geography, our Canadian business is a bit better with strong new business and stable retention. It makes sense because pandemic-related restrictions are loosening and the economy appears to be rebounding. The U.K. economy is still fragile, but the retail business here is showing better-than-average retention, while new business is off a bit. When I look at our London specialty operations, I'm seeing new business down some, but offset by continued strong retention levels. Restriction in Australia remained tight, so the economy has been a little slower to recover and new businesses trending a little below historical levels. And finally, New Zealand, the first country to be back to normal with the exception of a hiccup in late July and early August. New business and retention metrics have improved. And I've really got to give it to our team in New Zealand because in August, they posted the biggest new business month of the year. So with strong new business, solid retentions and positive renewal premiums, overall, I see third quarter organic around 3%. If current positive trends persist and economies remain open, we are hopeful organic might be even a little better in the fourth quarter. Focusing on renewals outside the U.S. So far in the third quarter, price increases are offsetting exposure declines. Canada is seeing the highest premium changes driven by property, which is seeing significant rate and very little negative exposure changes. Australia and New Zealand premiums combined are also higher year-over-year driven by property. However, commercial [Audio Gap] are close to flat as price increases in these 2 lines are just about offsetting exposure declines. Moving to the U.K., we are seeing renewal premiums up in property and casualty lines, offset by negative premium changes in commercial, auto and marine. Overall, closer to flat with rate increases, once again, broadly offsetting exposure declines. In terms of EBITDAC, we're seeing savings on our operating expenses, letting attrition tighten our workforce ranks and continuing to shift work into our centers of excellence, which now have over 1,000 colleagues supporting the international P&C business and our Gallagher Service Center. So we feel pretty good about the market environment. Rate is mitigating exposure to declines in most lines of business and geographies. Exposures are recovering off the lows as economies reopen and midterm policy adjustments and cancellations are not significant. And even more encouraging is that our producers are winning new business while servicing existing clients without any disruptions. Bottom line, I am very pleased with where our international operations are today and optimistic about the future. Okay. I'll stop now and turn it over to Joel Cavaness, who's going to discuss our domestic wholesale brokerage operations, known as RPS. Joel?

Thanks, Tom. Good morning, everyone. So as Tom said, I'm Joel Cavaness, and I lead our domestic property/casualty wholesale intermediary, which trades under the name of Risk Placement Services or RPS for short. My comments today will follow the same format as all the previous speakers. First, I'm going to start with an overview of our business. Then I'm going to provide some comments on the property/casualty pricing. And third, I'll wrap up with some observations related to our third quarter and a soundbite on our fourth quarter. So as you recall, RPS started from scratch in 1997 with just 4 employees. And since that time, we've grown to the fourth largest wholesale broker in the U.S. We have over 2,300 colleagues. We finished 2019 with approximately $425 million in annual revenue, and we placed about $4 billion on behalf of our clients. Remember, as a wholesaler, our customer base are not businesses themselves, but rather independent agents and brokers that need our capabilities, our products and our carrier relationships. About 25% of our business comes from the Gallagher retailers from Mike's group, while the remaining 75% comes from other non-Gallagher agents and brokers across the country. Let me walk you through our key businesses, starting with open brokerage. Open brokerage is basically helping a retail broker who's having a difficult time placing a line of coverage or needs access to a specialty coverage or a market that they don't have. In this case, we go to the market and we negotiate on behalf of the retailer and their client. It is very specialized, and it can range from hard-to-place property, like earthquake or flood; or to casualty, like long-haul trucking or liquor liability; or many other lines. Many times, these placements are further complicated with multiple layers and multiple carriers involved. Next, we have our MGA and our program business. Here, we underwrite, we price, we bind, we collect the premium and we issue the policy, but we don't take any underwriting risk. We have about 40 programs focused on specific types of entities or coverage. As an example, our commercial lines programs range from public entities to country clubs to amateur sports. And our personal lines program includes nonstandard auto, manufactured homes, low-value dwelling and the like. And finally, we provide standard lines aggregation where we provide retail agents access to admitted products from various carriers. For example, a local agency in Maine might be too small to get a direct Chubb appointment. However, the agency can still access Chubb's products through us. In essence, it gives that main agency more products for its customers. Our goal continues to be the recognized leader in the intermediary market by providing a very wide range of services across a very large distribution platform. We, of course, compete with many different wholesalers, and ultimately, we win because our speed of response, our ease of doing business, our product breadth and the strength of our carrier relationships. In this environment, as you heard Mike say, rates are increasing, capacity is shrinking and terms and conditions are becoming more difficult. That environment is making RPS a lot more popular with retailers as they need our help with their placements. This is leading to more opportunities and submissions to us. For example, our e-commerce platform, which offers our retailers nearly 20 different products, is seeing tremendous growth in submissions and revenues. And while opportunities are increasing elsewhere, our execution remains unchanged. We are supporting our clients by finding markets, designing programs and importantly, maintaining fast turnaround times. While how we transact and conduct business has been different over the past 6 months, we do continue to win new business and retain our customer base. So pre COVID, our open brokerage operations were posting nearly double-digit organic growth. Programs in our aggregation business were in the mid-single digits as well. Profitability was very solid with margins in the 20s, and we, too, have been able to further leverage our centers of excellence with almost 500 associates supporting our wholesale operations today. We're also a seasoned acquirer. In fact, RPS has completed over 50 acquisitions since 2000. Most of our activity has been focused around the MGA and program space largely because that's where the opportunities are. There are thousands of MGAs in the U.S. We are focused on partners that fit us culturally, that are additive to our business and then those that can provide us with additional M&A opportunities. These mergers choose to join us because they see that together, we can make investments in data and technology and certainly open doors through our already established relationships where we do over -- with business from over 13,000 retailers. That distribution, combined with the current E&S market conditions and of course, the potential changes in capital gains, is driving more M&A opportunities here in the third quarter, and I think that it will be a very active close to the year as well. Moving on to the pricing environment. Wholesalers tend to see rates move a little earlier and more sharply than retailers, so add at least a couple of points to what Mike has seen. Our data is showing overall rate approaching 11% in July and August. This includes double-digit increases in property, professional liability, excess casualty, while workers' comp is generally about flat. We're seeing stronger rate increases for small business, particularly in our program and binding operations. I think this is stemming from an increase in mid-sized catastrophe events so far this year. For example, Hurricane Laura should be a modest industry loss, say, about $10 billion or so. But our small business customers have incurred more than 1,000 claims from this storm alone, which is very supportive of continuing firming rates. Continued social inflation and litigation financing are also altering the U.S. marketplace. Capacity continues to tighten, specifically for umbrella and professional liability. Fewer carriers are willing to quote and those that do quote are reducing the limits that they provide. We're already hearing of expected reinsurance increases at 1/1 renewals and that reinsurers continue to move to excess of loss positions and off of large quota share agreements. So overall, it's a pretty difficult market out there. Let me give you a sense of what we're seeing here in this quarter. For our renewal business, premiums are up year-over-year through the first 2 months of the third quarter. Premiums are up double digits within our brokerage business, which would suggest pricing is exceeding exposure change by a pretty wide margin. On the program and business and binding side, rate increases seem to be just about offsetting exposure changes. Not a lot, they're just covering the decrease in exposure units. We're seeing the largest premium increases in property and professional liability, where rates are strong and exposures aren't shrinking. On the other hand, modest rate increases in workers' compensation aren't offsetting the exposure declines that we're seeing. So comp premiums are down year-over-year, but even for us, workers' compensation revenues are only a couple percent of our businesses at most. So I talked in June about how I view trends in commercial trucking space as a leading indicator for future economic activity. In April and most of May, when the economy was relatively effectively shut down, many trucks were sitting idle, vehicles were being removed from policies and weak driver demand resulted in significant declines in spot freight rates. From March to May, our commercial trucking revenue underperformed other areas and was down about 10% during that 3-month period. However, we did begin to see these trends reverse in early June. And sitting here in mid-September, demand and freight rates have fully rebounded, and we're seeing trucks being added back to policies. This is translating into a very nice lift in our commercial trucking revenues as well with mid-single-digit revenue growth from June to August over the same period of last year. So I think this bodes very, very well for future economic activity and into the fourth quarter. A few more observations regarding what we're seeing so far in the third quarter. New business is up a little bit over last year with similar trends in brokerage programs and binding. Retention rates are also up about 1 point relative to last year. Our midterm adjustments are similar to pre-COVID levels and even full cancellations are actually trending better than last year. We continue to be very encouraged by this dynamic since companies are not going out of business. When it comes to EBITDAC, cost savings, combined with our organic is leading to strong EBITDAC growth over last year. Like other speakers, we too are seeing natural savings from lower travel and entertainment while further utilizing our offshore centers of excellence to counterbalance attrition. Overall, I think the business is in great shape. The brokerage business is growing nicely, and the market environment is conducive for further opportunities. While growth in the MGA and programs business is still lagging open brokerage, it's been catching up as we move through the third quarter. And if commercial trucking is the economy's canary in the coal mine, then I'm even more encouraged. Needless to say, I feel good about our business, our competitive position, and I'm very optimistic for our future. I'm going to stop now, and I'm going to talk -- I'm going to turn it over to Bill Ziebell, who's going to discuss our employee benefits consulting operations. Bill?

Thank you, Joel, and good morning, everyone. I am Bill Ziebell, and I lead our employee benefits and HR consulting business, also known as Gallagher Benefit Services, or GBS. My comments today will follow a similar structure I'll first provide an overview of GBS and then give you some takeaways from what we have seen so far in the third quarter and some early thoughts on fourth quarter. GBS began in the mid-'70s and has grown to the fourth largest benefits and HR consulting firm in the world, generating more than $1.2 billion of revenue during 2019. Our 4,400 colleagues operate out of more than 100 different locations, spread across the U.S., the U.K., Canada and Australia. However, about 90% of our revenues are domestic and 10% are international. We sell traditional medical, dental, vision and voluntary insurance products that employers provide to their employees. We also advise on overall plan design, financial projections of these plans and potential funding alternatives. That accounts for 70% -- 75% of our revenue. The other 25% comes from HR and compensation consulting, pharmacy benefit management services, retirement plans, executive benefits and other services that help employers address their human capital needs. We target middle-market corporations, which we define as businesses that have somewhere between 100 and 5,000 employees. Like our retail P&C counterparts, we provide client resources and capabilities that most smaller competitors just don't have. We also serve larger corporate enterprises by offering a fresh alternative to some of our bigger competitors. Earlier, you heard Mike and Tom talk about CORE360, their value proposition to analyze and address clients' total cost of risk. On the benefits side of the business, we have Gallagher Better Works, which explores all the levers that an employer has to attract, engage and retain talent in a sustainable cost structure, levers that few of our smaller competitors can touch. Gallagher Better Works centers on the full spectrum of organizational well-being, how to maximize the workforce by investing in physical and emotional health, financial well-being and offering career growth opportunities. We tailor solutions that address and maximize each of these. And clients recommend us for our thought leadership, strategic thinking and the overall value we bring to the table. Our pre-COVID surveys show that attracting and retaining talent was the top priority for most employers, while lowering costs was secondary. Interestingly, and maybe not surprising, our 2020 benefits strategy and benchmarking survey was published just last week and showed business continuity and cost control jumping ahead as the top objectives of most businesses in the current environment. While our goal is to help employers maximize productivity of their workforce, we also offer strategies to lower costs. Our pre-COVID benefits business was growing mid-single digits organically with mid-90% retention and high single-digit new business growth. And like our property and casualty businesses, it was growing with a high level of profitability. Adjusted EBITDAC margins were in the high to mid-20s. We are also actively engaged in mergers and acquisition, completing 15 acquisitions during 2019. Benefits and HR consulting firms want to join Gallagher because we have what everyone wants, resources. We have niche expertise, we have content, we have marketing and we have superior technology, all the tools necessary for benefits professionals to succeed. Our pipeline of potential mergers is growing, and I'm hopeful that we'll complete a handful of additional mergers in the last 4 months of the year. Operationally, GBS continues to perform very well. Nearly all of our colleagues are still working from home, and our people have settled into their new work environment. You heard Mike talk about how doing business virtually has allowed his team to deliver even more expertise at the point of sale, and we're having the same experience. I can share a lot of stories, but here's one for you. Just last week, I listened to 4 of our young producers who were able to open new doors to significant opportunities by engaging with prospects in a virtual environment and then pulling in our niche and practice experts to differentiate ourselves going up against smaller competitors. These folks just can't compete against these capabilities because they just don't have them. I mentioned our 2020 benefits survey earlier, it is one of the largest surveys of its kind in the U.S. and includes responses from nearly 4,000 organizations. While only a week removed from its publication, we've already created nearly 90 million impressions. The findings have been downloaded more than 3,000 times, and we have numerous new leads and meeting requests from prospects. You can find an executive summary on our website at ajg.com/us. I think you'll find it interesting. Our team also has been hosting a series of monthly town hall discussions, bringing our expertise and thought leadership front and center. These town hall webinars have drawn considerable interest with nearly 10,000 clients and prospects participating. And the discussions have ranged from our multi-disciplined return to the workplace webinar, which I did discuss last time; to topics like how to tackle open enrollment in a virtual setting; or how to balance cost controls and workforce needs. Efforts like these further distinguish Gallagher from the smaller brokers and consultants, we are competing with day in and day out, and we continue to like our new business chances in this environment. Let me finish up with some thoughts on July and August. I'll start in the U.S., again, that's about 90% of our revenue and around 80% of that is traditional medical, dental, vision and voluntary insurance products, all of the typical coverages you get via your paycheck from your employer. Headline unemployment remains elevated relative to historical levels, but has improved from the spring peaks. Our business has been a little more insulated from the deterioration in domestic labor markets. So let me give you some factors that are behind that. As we have said in the past, unemployment figures include workers that have been furloughed, but the vast majority of furloughed employees continue to receive their benefits through employer-sponsored plans, so they are still covered lives. Second, if an employee is let go or terminated, through their purchase of COBRA, they also remain on their old employer's health plan, again, still covered life. And third, our business mix. We tend to operate at the higher end of middle market, and we aren't overweight in the hard-hit industries like retail, restaurants, hotels and hospitality. Our business includes more resilient employers like higher education, public entities and religious institutions. A couple more observations worth making. Similar to last quarter, we are not seeing many companies go out of business. So our clients' businesses are holding up, which is encouraging. Second, our client retention remains solid in the mid-90s and very similar to pre-pandemic levels. We are seeing some carriers give premium holidays, which has reduced employer shopping and help retention, but has made new business a little more difficult. We have also found that employers who are treading water and thinking about potential workforce reductions just aren't as open to new ideas or projects to attract and retain talent. Shifting to the other 20% of our U.S. revenues, which is our fee-for-service business. Fees in aggregate have been holding up better, but underneath that, it's a tale of 2 cities. On the one hand, we are seeing projects and other one-off engagements being delayed. On the other, our executive benefits and pharmacy benefit management businesses continue to do quite well, which is helping bolster this portion of our operations. So we think third quarter organic will be much like our second quarter in the U.S., down low single digits, and that trend will likely improve in the fourth quarter since we think labor markets are poised to recover somewhat, and we are beginning to see some new business opportunities in our compensation consulting business. In fact, new business sold in August was similar to January and February levels. Now moving outside the U.S., which is about 10% of our total revenues. In the U.K., we are forecasting second half organic to be flat to down slightly, leading to a full year revenue decline in the mid-single digits. In Canada, some new business wins during the second and third quarters should lead to flat to slightly positive organic for the next couple of quarters and full year. And in Australia, only a portion of the business is head count-based so unemployment levels play less of a role. Thus, we are expecting growth for the third and fourth quarters. But when I combine domestic and international, I think resilient client retention, offset by a challenging new business dynamic, continued softness in covered lives and some delayed projects will cause our organic to be negative by 1 point or 2 here in the third quarter. As of right now, fourth quarter organic shows a little better than that with unemployment turning a bit better in some of our practice groups seeing some green shoots. However, I will say there remains a lot of uncertainty. In terms of EBITDAC. Even with slightly negative organic revenue, our workforce and operating cost savings positions us to produce year-over-year EBITDAC growth. Regardless of the ultimate shape or timing of the recovery, our people remain committed to helping clients navigate the current challenges. The level of dedication, creativity and energy the team has shown over the last 6 months makes me very excited about our future. All right. I'll stop now and turn it over to Scott Hudson, who's going to discuss our Risk Management segment, also known as Gallagher Bassett. Scott?

Thanks for the introduction, Bill, and good morning, everyone. My name is Scott Hudson, and I lead Gallagher Bassett, which is our third-party claims administration business and is shown in our financial statements as our Risk Management segment. This morning, I'll provide you an overview of GB's business, give some comments on what we're seeing in the third quarter and then finish with how we see the overall year playing out financially. Gallagher Bassett, or, as I say, GB for short, was formed in 1962 by Jim Gallagher and Sterling Bassett, and today, we are one of the world's largest P&C third-party claims administrators. In 2019, we generated over $800 million of revenue. About 83% of that is domestic, 17% international. And the international is mostly in Australia with sizable operations in the U.K. and Canada. We've got 5,600 employees, almost all of whom are now working from home, although, in our case, many of those worked from home prior to COVID. We don't take underwriting risk, but rather adjust claims for our clients. In fact, we handle about 1 million claims per year and pay out well in excess of $10 billion annually on our clients' behalf. This would make us about the eighth largest P&C insurance company in the U.S. if we were measured by total claims paid, which gives you a sense of kind of our overall scale. 70% of our revenue is from workers' compensation, 20% liability and 10% property. Although the property is, for the most part, very little, storm-chasing activity. We also, with some of the efforts more recently put in place, have nice specialty offerings for lines like product liability, medical malpractice, environmental, professional liability and cyber. So today, we're able to talk about any one of our clients about a well-rounded set of services for a large portion of their exposures that they would have in their business. As I've said in the past, we serve 4 distinct client segments. The first one, which is our biggest, is large commercial clients who self-insure or have deductible programs and then outsource to Gallagher Bassett the claims resolution process. Then our public sector clients, which includes local municipalities, school districts, state entities and some federal governments. An example of that or a significant portion of -- it would be a significant portion of our clients in Australia being the state-sponsored work comp schemes. Third, we have a number of alternative market or group captive clients. These are generally pooled entities that utilize us for their claims infrastructure. And then the fourth segment is insurance carriers. I've talked about this a lot. This is a growing client segment for us. And as we're helping more and more carriers with outsourcing a portion of their claims handling business. Clients choose us because of our expertise to deliver -- because of our expertise and the fact that we deliver what I refer to as the best claims outcome. Now I think it's important to understand that the best claims outcome is not always the lowest way to handle -- or the lowest cost to handle a claim and what that means varies by client. When you're dealing with a specific insurance carrier, a specific commercial entity, they're going to want claims handled a certain way, given their overall value proposition and how they face off with their employees. So we do customize our services to align with clients' expectations, whether that be back to work sooner, brand protection, customer loyalty or overall lower cost. That's the way we add value to our clients. Our revenue retention generally runs in the mid- to upper 90s. So the business is very sticky, and that stickiness hasn't changed with the pandemic. In fact, our current retention levels are similar to historical levels. New business generation tends to be lumpier, varying from quarter-to-quarter because many of our prospects have very large volumes. As a result, over the last 3 years, our quarterly organic can bounce somewhere between 2% and 10%, but annually, we end up running around 5% or a little bit over. We were running about that in 2019 and in the first quarter of 2020, pre pandemic. In the second quarter, organic was down almost 10%, and it looks like, hopefully, that will be the bottom. Later on, you'll hear me say organic should improve to about negative 6% in the third quarter and perhaps a little bit better in the fourth in part due to our strong new business performance. M&A is also a growth driver at Gallagher Bassett, but not to the same extent as the brokerage business. Our industry is already relatively highly consolidated, and there are a few large customers -- and a few large customers that are using local PPAs. M&A just to add scale, that's not the way we approach it. We have plenty of scale in our core products and services and geographies, but rather, we look for highly specialized and complementary claim adjusting and risk consulting entities that give us a new capability, a new product or deeper technical expertise. At the end of the day, my team and myself always ask a very simple question, "Will this acquisition help us deliver better claim results for our clients?" During 2019, we did complete 3 acquisitions all of which were added to -- all of which either added or expanded our capabilities. And we do have a nice pipeline of potential opportunities, and we could actually see a couple of the smaller ones completed before the end of the year. Over the last several years, GB's margins have been in the 17% to 17.5% range, which we believe is industry-leading. And even at that level of margin, we were still making substantial investments in order to improve our products, platform and service levels. And I'm actually happy and very pleased to note that we just received this past week, the 2020 business insurance award for Insurtech Initiative of the year specific to our clinical guidance in TQI, or treatment quality index, capability. This new tool measures the overall quality of care. But more importantly, what it's doing is it's ensuring an injured worker gets the best care by keeping the claim on track. As I talked about at our last IR day back in mid-June, our financial goal had shifted after the pandemic given revenue contraction. Revenues, I'm -- we're confident that they'll rebound over time. So our goal here in 2020 is to ensure that our EBITDAC doesn't slip. Our target is to generate full year 2020 adjusted EBITDAC similar to or slightly better than last year's EBITDAC of around $150 million. So how are we doing against that goal? Through the first 6 months, EBITDAC is only down $2 million even while organic is backwards more than $11 million. And as I sit here today, I'm confident we can make that up and then some in the second half. This performance is a direct result of our cost containment efforts. In the second quarter alone, we saved close to $14 million by proactively managing our workforce and implementing expense controls. We rebalanced claim loads across adjusters to ensure we don't negatively impact service to our clients. And at the same time, we reduced discretionary spend, changed many of our procurement strategies, limited the use of outside consultants and delayed nonessential projects. I've got to give it to the team, I think we're doing an absolutely amazing job. So that's what we delivered in the first half of the year. So now let me talk you -- or walk you through what we're seeing thus far in the third quarter. First, client retention. Based on client count, retention continues to trend at historic levels. As we discussed last quarter, our clients are experiencing business slowdowns, many of them, but we still haven't seen any significant permanent closings. Secondly, new business. We continued our new business momentum in July and August, adding a couple of new clients to our roster. New business sold this year remains well ahead of where we were this time last August. And then the third input, it's claim arisings. Clients continue -- as I've said now a couple -- for a few months here, clients continue to experience weaker year-over-year business activity and unemployment levels remain elevated. So work comp, auto and general liability claim counts remain under pressure. We saw consistent monthly claim count increases as the second quarter progressed, and that trend of improvement continued into July, but flattened a bit in August, which makes some sense given the fact that businesses aren't necessarily continuing to ramp up with some of the restrictions in place in the various states. Let me give you a couple of examples, take a restaurant or a movie theater. While these clients have reopened for business, they're still not operating at full capacity. They may be at 50% capacity due to social distancing. So they really don't have an opportunity to increase activity much beyond that point. So I think it's just going to take some time for us to see another large step of new claim -- step-up in new claim arisings across many of these industries. With that said, there are still a lot of our clients that are in the industries that are early on their journey off the bottom, so we should continue to see a little bit of an uptick in claim activity moving forward. While trends are encouraging, let me break down what this means for the third quarter, starting with the $210 million we posted in the third quarter of 2019. A little more than half of that revenue represents our Australia-based public entity business, our U.S. specialty liability business and U.S. cost plus contracts, which all have remained resilient over the past 6 months. So we don't see any major movement there. Recall that these revenues are generally not tied directly to claim volume. And a portion of these clients have chosen not to reduce the level of resources that they have deployed with us. A good example of that would be our Australian public entity businesses. The next largest piece of our revenue is our complex higher fee claim business, which represents approximately $90 million of revenue. Non-COVID newer arising claims continue to improve, but are still down a little more than 10%. However, we do have COVID-related claims continue to be reported, which does offset that decline a little bit. If you take those 2 things together, I think we'll be down approximately $10 million to $12 million in revenue in third quarter related to this type of claim. And finally, we have our high-frequency low-severity claims, which remain off about 30%. However, this is the smallest portion of our revenue, about $10 million on a quarterly basis. So we expect another $3 million headwind from these type of claims in Q3. When I add all these up, I see somewhere around a $13 million organic headwind in the third quarter or, let's call it, about negative 6% organic, which is really a nice rebound off of our negative 10% in the second quarter. But again, if we save another $14 million in expenses like we did in the second quarter, we can offset that entire drop. Looking beyond the third quarter, we are optimistic that we will see further revenue improvement. Here's why I'm so excited. First, we are selling new business. I think our sales professionals are becoming more and more effective in telling our story, and the current COVID environment has not restricted our ability to talk to prospects or demonstrate how we can deliver superior claims outcomes. Second, client retention, as I've said, is remaining at historical levels and reinforces that we continue to deliver outstanding service and industry-leading claim outcomes for our existing clients. And third, we are seeing an uptick in claim activity across certain pockets of our business. And our expansion into carrier outsourcing, specialty liability claim handling and environmental health and safety have all proven to be excellent strategic moves. When workers' comp and general liability claim activity fully recover, I think we'll have a nice tailwind from these growing practice areas. And fourth, our relentless focus on innovation, highlighted by our recent Insurtech initiative award for clinical guidance in TQI. There are -- these are -- there are many examples like this brewing within Gallagher Bassett that further separate our offerings from the competition and will enable us to outpace our competitors when it comes to delivering superior claim outcomes and improve the overall efficiency of our claims resolution managers. In terms of profitability, we are proving our organic revenue declines can be offset by our expense savings and workforce optimization efforts. As I mentioned before, EBITDAC was down slightly through the first 6 months of the year. However, I'm confident that we will make up a small portion of that here in the third quarter, let's say, $1 million or so and even do better than that in the fourth quarter, leading to a full year 2020 EBITDAC similar to or even a little bit better than 2019. To quickly wrap it up, I am encouraged by the uptick in claim activity in the recent months, our new business production and the relative health of our clients and our competitive positioning. The team is executing on all of our financial targets while continuing to deliver superior claim outcomes. Once claim activity rebounds closer to pre-COVID levels, I am highly confident we are poised to return to historic and most likely even higher levels of organic growth year in and year out. Okay. I'll start now and turn it over to our CFO, Doug Howell. Doug, take it away.

All right. Thanks, Scott. Good morning to everyone. Thanks for joining the call. I hope you found the last hour or so of today's commentary helpful, and it will hopefully it'll help you have a better understanding of our various businesses, their strategies and how we're executing in the current environment. Today, I'm going to recap what was said about our third quarter, give some early thoughts on our fourth quarter. I'll point out a few small items on the CFO Commentary document we posted on our website, then wrap up with some comments on cash and liquidity. All right. Let's first talk about our view of third quarter organic. Let me recap. You heard Mike and Tom say that our global property and casualty businesses are holding up really well. New business and retention levels are similar to pre-COVID levels. And in most geographies, premium increases are positive, so price increases are covering exposure decline. Perhaps the U.S. is faring a little better than international. But all told, it's looking around -- like around 3% to 4% organic growth here in the third quarter for those businesses. Joel then said that our open brokerage wholesale operations continue to post excellent results and that our MGA and program businesses have also improved relative to second quarter. New business and retention are similar or better than historical levels and rate is up double digits. Combined, these 3 wholesale businesses might post organic growth towards 6% in the third quarter. Then our employee benefit brokerage business. Bill has seen some softness in consulting and project work. New business is a little challenging, but retentions remain really strong. So let's call that organic a minus 2% for the third quarter. So when I sum it up, it feels like our brokerage segment organic will land somewhere around 3% for the third quarter. That's about 1 point better than the 2.1% we posted in the second quarter and just a bit better than our view 6 weeks ago that we provided during our earnings call. As for our Risk Management segment, it looks like minus 6% organic, which is in line with our expectations and a nice bounce off, after being down organically 10% in the second quarter. As for third quarter adjusted EBITDAC, our cost savings initiatives should deliver another terrific quarter. To refresh your memory, in the second quarter, we were able to adjust our expense base lower by $74 million. About $60 million came in the brokerage segment and $14 million in the Risk Management segment, shows you our operating flexibility and how quickly our team can adapt to the pandemic. Broken down further, these savings came from reduced travel, entertainment and advertising down $24 million; reduced technology, consulting and professional fees, down $14 million; reduced outside labor and other workforce actions, $13 million; office supplies, consumables and occupancy costs, down $12 million; and lower medical plan utilization, $11 million. As we sit here today, it's looking like we can get close to that again here in the third quarter, about $65 million to $70 million of savings after adjusting for roll-in merger operating costs. That's a little lower than the second quarter since we're seeing more normal medical plan utilization, and we're also seeing a little travel and advertising being up just a little bit. That said, still being able to deliver upwards of $70 million of savings in the third quarter would be really great work by the team. Let me move it on to some comments on the fourth quarter. You heard some encouraging comments from each of our various businesses. In our P&C brokerage operations, we see a good fourth quarter, a lot like the third quarter. Within our open wholesale brokerage, our wholesalers are having a terrific year. And now our binding and MGA brokerage businesses are growing again. So fourth quarter might be even better than the third. On the benefits brokerage side, we're still seeing organic being negative or perhaps back to flat as we're hopeful that the domestic labor market continues to improve, and we're also encouraged by how resilient our international operations have been. We're even starting to see some green shoots in our compensating -- compensation consulting practice. So it feels like fourth quarter brokerage organic could be very similar to third quarter. I would even say even better, but we did have an exceptionally good fourth quarter in 2019 for contingent commissions. So being close to the third quarter is close enough for now. As for Risk Management, perhaps more sequential improvement in the fourth quarter. Will there be enough additional partial openings or openings going higher than 25% or 50% of capacity remains to be seen, but a surge in reopenings might get us back to flat. Then when it comes to fourth quarter EBITDAC, a lot will depend on what happens with the reopenings journey. If fourth quarter continues like we're seeing here in the first couple of weeks of September, then I would expect we can hold a large portion of our cost savings. But if there's great progress on a vaccine or a therapeutic, and we see activity jump, that might lead to more travel, some additional investments, et cetera. Of course, as always, I must caution there remains a lot of uncertainty out there as we move through year-end. And all of this might hinge on another round of government stimulus, but that's what we're seeing as of today. All right. Let's move on to the CFO Commentary document that we posted on our IR website. You won't see any significant changes to what we provided during our second quarter earnings call at the end of July, except 3 small tweaks. First, on Page 2, foreign exchange. The dollar has weakened against all major currencies since the end of July. That still has minimal impact on full year EPS, but the full year revenue impact on our brokerage and Risk Management segment revenues are a little less than previously estimated. Second, when you turn to Page 3 of the CFO Commentary document to our Corporate segment, we did improve our forecast slightly for interest expense for the second half of the year as our expense savings initiatives are positively impacting cash flows. And third, turn to Page 5 to the rollover revenues table. With only 2 weeks left in the quarter, we're projecting third quarter rollover revenues of about $50 million. Even if we close a few acquisitions before the end of the quarter, our foreign exchange rates move wildly. This is unlikely to change more than a couple of million dollars. It seems that quite a few models or forecasts in third quarter rollover revenues of much more than that. So please take a look at your models as you fine-tune your estimates. Finally, some comments on cash, liquidity and debt. As we look across our business, cash flow and liquidity remains strong. I can see our global cash receipts daily. Cash receipts in July, August and through yesterday are trending similar to pre-COVID levels. We're just not seeing liquidity issues with our clients' ability to fund their insurance premiums and claims settlement accounts. We also have more than $500 million of available cash at -- on hand at the end of August and only $75 million of debt maturities coming up in 2021. Plus, we have more than $1 billion of available capacity in our revolving credit facility. So both our clients and Gallagher are in really good shape here. So those are my comments. Looking like another quarter positive organic stockpile -- excuse me, a stock M&A pipeline, strong EBITDAC growth. We've got excellent cost control and ample liquidity. With some hope that the economic conditions continue to improve, I think we can pull off an excellent full year in 2020 and be in a terrific position going into 2021. Okay. Those are my comments. Back to you, Pat.

Thanks, Doug. And thanks, everybody, for being with us this morning. It's time now, if we can, operator, to go to questions and answers.

[Operator Instructions] Our first question today is coming from Elyse Greenspan from Wells Fargo.

My first question was on -- wanting to spend a little bit of time on the margin within the brokerage segment. So if you assume, I got a certain percentage of saves similar to the Q2, right, the $60 million relative to the $74 million would hit in Q3. It seems like you could see around, just based off of my revenue estimate, around 430 basis points margin improvement from the saves. And so I'm trying to get a sense, I guess, that feels about like what it might come in. And then we're going to be 3% organic within the segment, I would think that there would be some underlying core margin improvement on top of that. So can you help me put together, how the margin was spread within your brokerage segment in the third quarter?

All right. So a couple of things. You said $60 million to $70 million. I think that in the third quarter, we'll be closer maybe to $65 million to $70 million, probably spread proportionally across the brokerage and Risk Management segment, similar to what we saw in the second quarter, which was $60 million and $14 million. So do that split, kind of 4/5 and 1/5. I think that the -- in terms of core margin improvement, if we're running at 3%, pretty hard to improve margin improvement, but I think last quarter, we saw 50 to 70 basis points. So between that saving and core margin improvement, you're probably looking at it the right way.

Okay. And then the 3% organic that you're expecting, I know the Q2 was a pretty strong quarter for your contingent commission. Is organic in the Q3, do you see it coming in as more weighted to just base commissions and fees than contingents or supplementals?

I think that actually -- I think the base commissions and fees in the third quarter could be right around that same number, maybe a little better. And maybe there is just a little bit of softness in the supplements and contingents relative to last year, but we're talking a couple of million bucks on that. So I would say core might actually be -- perform better than the 3%.

Okay. And then a couple on the M&A side. So I saw that you guys had alluded to multiples going up. Obviously, we've seen deals be a little bit more muted of late just given the environment. So that multiple guide that you guys revised up, is that based off of what you're seeing in the pipeline? Or is that also an estimate? You guys seemed a little optimistic that given some changes on the capital gains tax side, you could see deals pick up towards the end of the year. So would you expect multiples to be -- remain elevated when deals potentially start to pick up?

Well, I think a couple of things. First, we did change our guidance from 7 to 8.5 or 7.5 to 8.5 to 8 to 9. I wouldn't say that's a big march up in terms of multiples that we're looking at. We do have 2 or 3 nice brokers or large local brokers that are in the pipeline that might push that up a little bit more because they do command a little bit higher price. Their growth is good. More importantly, the arbitrage to our trading multiple is still there regardless of whether it's 8 or 9. And these are family-owned franchises that we think fit very well with us. And we've proven that on some of these larger ones, with $20 million to $30 million worth of revenue, we're just going to have to pay just a little bit more. But their growth is also really good. And the capabilities they bring and joining forces with Gallagher makes us even better because we can start sharing ideas on kind of the global placements into London, et cetera. So there is a little uptick on it, but I wouldn't say it's anything out of pattern than other than just the size of a couple of the deals.

Okay. And then my last question is on the reinsurance side. So I guess, Capsicum, which you guys are going to rebrand Gallagher Re. Just an update, I think the last time you gave us some numbers, it was around $100 million in revenue. Just an update on the size of the business, the growth that you're seeing there. And anything just in terms of long-term aspirations for how big reinsurance could potentially come?

Well, listen, I only have one thing on that is that it's doing really well. I got to give it to the team over there in London. They're delivering exactly on what we thought as we deepened our ownership interest in them to 100% here at the beginning of the year. I think coming into the reinsurance environment here at the end of the year, their capabilities are really going to shine bright. So I would say organic is going to be very -- will be good for Gallagher Re going forward. It's an important position for us, and I think there's a lot of disruption in the market.

Yes, Elyse, this is Pat. I think that the timing, like so many things we've done, just couldn't have been better. As I've said many times, this is probably the best start-up I've seen in my career, and it continues to grow nicely. There's clearly a tremendous amount of need in this marketplace, and I think that need is being met by the capabilities that we're being able to recruit. Excited about rebranding Gallagher Re. Those of you that are on the call have been around for a while would maybe get a chuckle out of that. But I think we're going to do extremely well. And the team, as Doug said, is executing. I think we'll jump off that $100 million and grow very, very nicely over the next decade.

Our next question today is coming from Greg Peters from Raymond James.

First question, I thought Bill's comments were interesting. And so I -- while he was talking, I did pull up the benchmark strategy survey. And I was looking at the conclusion that you put out that said you expect 86% of your employers that you surveyed to retain their work-at-home policies after the pandemic. When you see those type of numbers, first of all, does Arthur J. Gallagher plan to keep 86% of its workforce at home afterwards? I mean the potential longer-term savings on real estate seem to be pretty substantial. Or am I missing something?

Well, I think it's -- I think -- I'm looking at Bill here, but I think that the answer is 86% of employers believe that they will have more people working from home. I think that's the answer to it. Does that mean that 86% of their workforce will be working from home? I don't think that's what the survey saying.

If I could, there was a tripling of the number of employers that actually had telecommuting policies, and 86% of those are going to continue to have those telecommuting policies going forward.

All right. So clarifying maybe what the 86% is. What do we see here at Gallagher? We see opportunities for us to reconfigure our offices so that we can make a safe at-work location. We're providing some nice privacy, some flex space. That will naturally lead us to -- need to take less space. So we might go to some hoteling concepts or some rotation concepts. And also would probably led us look at the type of building that we use. Typically, we'd go into in our locations, a suburban location and maybe go on the fourth floor of a building. We may look at more first floor type locations just so that our employees don't need to ride elevators. May do more drive-up type buildings that also are first floor. So Greg, in answer to your question, yes, over the next 5 to 7 years, as our leases roll off, we believe there could be substantial savings in real estate. We're spending about $180 million a year in occupancy, and it wouldn't surprise me if we can get that to half over the next -- that number down to half over the next 3, 5, 7 years.

Yes. But Greg, I think -- this is Pat again. I think let's not miss the comment that Mike Pesch made and I think, Bill Ziebell as well. I think the operating results of having our customers be more willing to do things virtually is where the impact could be for us. So I mean Doug is going to oversee it, and we'll do a good job of getting our savings. But I think this is going to really juice the whole concept of the capabilities count. Right now, when you've got to be in every location -- remember, most of our business is middle market. So I'm sitting there with some person that spends $150,000. I can't get Brian Cooper on an airplane twice a week to come and see clients like that in different parts of the country or the world, but I can virtually. So now when I'm sitting there and I can pop up my laptop, and I can say, "By the way, here is Brian, real time, live, his team of construction specialists are behind them. Boom, ask the question." And where's the Jones agency on that one? Well, Mr. Jones will be over tomorrow maybe. It's really going to be powerful stuff.

Yes. Putting our best athlete at the exact point of pitch or at close or just being there to hold our customers' hands through a tough environment is now becoming acceptable on a virtual basis.

And by the way, I've had an experience. In the last month, we saved an account that was substantial in size. It was a construction account. And that client didn't even know all the people, the experts at Gallagher that had been working on the account because, obviously, our local office orchestrated that. Then they decided to leave for a smaller broker, and we rolled out the experts who got on the phone. And when the person says, "I did this for you. I'm out of San Francisco. I know it looked local, but it wasn't, I did this." And someone from the U.K. chimed in and said, "Here's what we're doing." They reversed themselves and stayed with us, which, of course, feeds into our M&A platform.

Great. You've laid out an outlook for the third and fourth quarter that looked, in the context of everything that's happened this year, pretty solid. When we're out talking to your investors and potential investors, one of the common pushbacks we get is regarding the savings that you've been able to harvest this year. And I think you mapped out $60 million to $70 million of savings in the third and fourth quarter, Pat. I guess -- and I'm not -- I understand that Doug went through and gave us some pieces of where the savings come from. But when we think about 2021, there's a couple of headwinds. First of all, medical utilization presumably will go back up to normal. There's other pieces, I assume some of your travel. So how should we think about 2021 in the context of these run rate savings? Because you have this record of expanding your margin, and it might be a headwind next year.

Yes. I think you got to look at it a little differently than that, Greg. If you draw a line from 2018 through 2022, I think we're going to see that same type of margin expansion going through over that 4-year period. We're going to get a bunch of it this year. We'll hold on to some of it next year, but we also have projects underway that will also contribute to continued march towards margin improvement. We've been -- I think we've improved margin every quarter for the last 20 quarters other than maybe one or something like that. So the march on the line, we might be getting there a little bit faster, but we're still going to get margin improvement. We have 12 different task force underway. And some of these are anything from records retention; to training and development; to outgoing, incoming mail; producer licensing, kind of projects that might not get you too terribly excited. But when you add all those up, it can lead to maybe as many as $40 million of annualized savings that come just from those little projects. Then you take the fact that we -- over 15 years, we have invested heavily in standardizing our work, shifting work to lower-cost labor locations, improving our technologies, becoming more efficient yet raising our quality. I see us continuing to have opportunities to leverage those capabilities across not only the businesses that -- one business, in particular, has 30% of its head count in our centers of excellence. Imagine the journey when 2 or 3 other divisions go on that same journey over the next few years. So margin improvement is in our DNA. We're harvesting a lot of it in this case. There will be some costs that creep back in next year. And we are back at full medical utilization. That's why we're not saving $74 million this quarter, and we're saving close to maybe $70 million is because, thank goodness, people are out there getting their preventative medical care. So if people aren't excited about that story, I don't understand why. We're still on the path of margin improvement. And just because we get a little bit more this year, I just don't understand why that's not a great story.

Okay. Two other small questions, numbers questions. On Page 4 of your CFO Commentary, and my gosh, I know you guys have beat this up several times, but this is the Chem-Mod and the total after tax earnings. For 2021, we should assume, based on what's going on with the government right now, that that's 0 after tax earnings, correct?

No. That might be 2022, but 2021, we still -- we'll still have our clean energy segment earnings on that. And remember, these are GAAP earnings. What happens in 2022 is we start harvesting all the cash that we -- the credits that we've created. And so what will happen is GAAP earnings on a reported basis might evaporate for this segment, but cash earnings for this could be even more than what we're reporting by a long shot because we're starting to use that $1 billion-plus receivable that we have from the government on our tax credits. So 2021 should look a lot like 2020. '22, you'll really start seeing the cash flows coming off of this business.

Got it. And the final question is on the cash flow. You said $500 million of cash available for acquisitions. You said $1 billion of revolver available. You're never going to want to spend all of it. So if you think about what you like to have, call it, walking around cash for acquisitions or dry powder, what's that number look like for Arthur J. Gallagher on a quarter-to-quarter basis?

I think that by the time you look at just our ability to harvest the cash out of the bank accounts around the world, we haven't talked about that. Generally, we end up about $100 million in a quarter of cash that just -- it -- we can't get it today, but it might take us 30 to 60 days to get it just by the time we transfer it. We're also not too eager to repatriate cash because the cash that we report on our balance sheet, if you convert it back into local currency, that -- which shows you the buying power that we have there, it might be another $50 million to $100 million because a lot of that cash is sitting in foreign accounts. We will use that cash not in dollars, but in pounds and in Aussie dollars, et cetera, to do acquisitions, Canadian dollars, we'll do acquisitions. So the buying power of our cash is even greater than the $500 million. So -- but by and large, there's $100 million in a quarter that just -- we just -- it just kind of sticks in all the minimum bank accounts, et cetera. It's our cash, but we just can't get to it all.

Our next question today is coming from Mike Zaremski from Crédit Suisse.

First question for Pat. Thinking about your P&C rate environment commentary in the early remarks, I think you mentioned you could see reasons for carriers to ask for even more rate. Maybe you can flesh out why you feel that's the case.

Well, I mean, I think a couple of things. First of all, everything you read is about inflation when it comes to claims settlements, especially in the United States. We're getting -- we're seeing rocket ship like settlements occurring out there. So I'd just call that social inflation, which is not going to go away. Secondly, I think that just basically, the cost of risk is higher. And you're seeing the typical construction and what have you costs are up, and you're seeing more claims, even in the middle-market side. I mean these storms that are hitting us in the South may not get the kind of press and publicity, which, by the way, Katrina deserved, but they're repeated assaults on the business, on the property side, which is why, especially when you hear Joel's comments about our wholesale business, property rates are up. And by the way, that's where capital will flow into the market to mitigate over time, but that's also good for our clients and good for us. So I just think the overall social and economic environment of the loss picture is worsening. Then you've got the investment environment. And just there's no interest rate. And so now if you think about it, a big chunk of our carriers' stability in earnings over the past decades has been from their returns on invested assets, and that's just under stress. So all of those things together, I think you add to a picture where, frankly, we as brokers need to do a good job explaining this to clients well in advance of their renewal because the worst thing a broker can do is surprise their clients. Now from 2008 to 2018, you all heard me say, I really loved the rate environment because I called it flat. And you would talk about, "Well, Pat, it looks like the CIB is up -- staying up 1.5 this quarter. Oh, next quarter, it's down 1." And I'd say, "Guys, up 2, down 2, up 3, even for a -- that's flat, and that's fantastic." I don't like hard markets because they do dislocate our clients, and they're not good for the client. But they're good for the broker, to be honest. This is a time when we shine for the client and we get paid for it.

Okay. So then I guess when Scott Hudson is kind of talking about continuing to see overall work comp and GL claims activities being down double digits during this pandemic, so clearly, you feel this is going to be temporary? Because it does seem like it's a short-term reprieve for the carriers. And kind of Doug's kind of gave us an update too that contingent and supplementals will be healthy this quarter as well. So I guess that's kind of what I think some investors are trying to figure out. There seems to be some benefit even despite the storms because of less claims activity, but it sounds like you're saying that it'll -- it's likely to be short lived.

Well, Mike, the other thing, too, is that I think you got to see when you hear Scott's comments and what have you, we're talking about P/C carriers trying to deal with this hardening market. Now if you look at our history, we come from the risk management, moving clients from first dollar coverage into forms of self-insurance, and that's a huge differentiator. I will tell you when the Aon-Willis acquisition is over, there'll be 3 or 4 of us in the market that have any real expertise at that. And by the way, the need to be able to move into the alternative market goes deep into the middle market. That's why our group captives will be and are exploding as clients try to deal with this and the way they deal with it is by taking more risk. And when they do that, that takes even middle-market clients right into GB's lap. That's why they're -- where they are today because that's what we did in the '60s, '70s and the early 2000s with hard markets. You see a spike and people saying, "I've got to deal with this a different way." So the alternative market, we were part of the dawn of the alternative market. We practically helped invent that market. And if you're -- again, I keep coming back to this, but if you're a little local broker, and all of a sudden, the client is saying, "I'm hearing from this firm, Gallagher, that I should be considering taking a large SIR. I don't even know how that works." And you're sitting there saying, "Well, I've got one that I did once a number of years ago, but what's a group captive? How does that function? What do I own? Do I stay? Do I own stock? How does that work? Who pays my claims?" We kill it in that environment.

That's helpful. Okay. Understood. Looking at my -- maybe a couple of questions for Pat. Would you be willing to kind of share maybe at a high level, what percentage of your expense base is T&E in real estate expenses?

Well, Doug touched -- I'll throw that to Doug. But Doug touched on real estate being about $180 million.

Yes, $180 million on that, and our T&E is running somewhere around $75 million, just pure T&E. That's -- I'm not...

Okay. Perfect. And Doug, are there any changes, potentially update on the longevity of some of the clean coal credits if we're thinking out '21, '22, '23?

Well, again, I think that there are some that are looking for an extension of the Section 45 generation period. The generation period ends at -- sunsets at the end of 2021. There are some movements afoot trying to get that extended a year or 2 or 3 years on that. So if that happened, that would be that would be terrific for us is to extend that. Neither one of the -- even if that doesn't happen, again, I come back to that, we do have, right now, kind of a 7-year runway of generating more cash out of that by using our credits. So an extension would be terrific. But I like getting -- I think getting into the cash utilization or cash generation period, let's call it, the harvest period of the $1 billion, $1.1 billion of tax credits we have on the balance sheet, we'd take that, too. So -- and then there are -- Section 29 ended a number of years ago and things went quiet for a year or 2, and then Section 45 came about. I do believe that energy needs in the U.S. continue to -- the government recognizes that encouraging innovation through tax credits or subsidies through tax credits is important. So there could be another law that comes into place that encourages further innovation, either in the coal space or in the wind or the solar or other energy. So there could be another law that comes down the path that says, let's encourage innovation because this really does work. I mean we are making coal burning better every day. As long as the U.S. needs coal, let's make it better, and I think the government has recognized that. And so it's worked out pretty well.

Okay. Got it. and lastly, just wanted to flesh out, Bill Ziebell, and I think Pat, too, in your prepared remarks kind of brought up, I think, a slowdown in sales due to -- might have been health insurance carrier holidays, maybe. I think that's something a lot of us don't fully understand or appreciate. If you can just quickly flesh that out.

Sure. Mark, this is Bill. So if you remember the -- from the ACA, there were medical loss ratios that were in the law, and it required the health care insurance companies to take $0.85 of every dollar of premium and spend it on claims. What you've heard already probably from other sources is that a lot of the elective surgeries and things of that nature are down. So if a carrier has taken the premium and there's no claims to be paid, they're stuck with this extra -- excess cash, if you will, and they had to give that money back to the employers who are paying the premiums. So in doing so, they're maintaining their 85% medical loss ratio, but they're taking pain away from the employer, which is slowing down the new business opportunities for us.

Got it. So less reason for progressive clients to switch or -- but also does that mean inflation is negative for health spend too or less positive, and that's also an impact?

A little, I guess, you could say. But we're already -- it's built into our numbers and we've already reported on. I would tell you that what's also interesting, if you go back to the Great Recession, a lot of those elective surgeries that were -- and so forth were put off during that time, they never really came back. So I think you'll see that we'll see more of the same for the coming months in terms of medical claims. Don't also forget that a lot of our clients are self-funded as well, and that's helping their bottom line, their P&L because they're not paying the claims on those procedures as well.

Our next question is coming from Ryan Tunis from Autonomous.

Just a few clean-up questions here. I guess the first one, following up on that question about utilization. Is there a positive impact in terms of contingents or supplementals when utilization is as low as it's been?

Not so much on our benefits business. That's mostly volume-based supplementals and contingents. It's not loss ratio-based supplementals or contingents.

Okay. And also on the employee benefits side, you mentioned that retention is pretty high, but there have been some situations where you're giving premium holidays. Could you give us some context of maybe how many -- what percentage of your employees are currently on premium holiday?

Really hard to give you a good number, but I would tell you, it's pretty consistent across the medical carriers in giving those holidays. We've done a great job of ensuring that we're still getting paid from those carriers. There are some head count down, as we discussed, with furloughs and risks. But by and large, we've been able to continue to get paid by the carriers despite their holidays.

Got it. And then on the T&E number of $75 million, I have to ask. I think you said 1Q T&E was down $25 million in that -- or 2Q was down $25 million alone. I'm just trying to maybe understand the seasonality of that because that seems to imply like annually, it's down more than 100%.

Well, listen, I think you have to look at it, it's reduced travel, entertainment and advertising was down $24 million. And so within the travel, there's meeting expense in there, too. So when the question earlier was what's our pure T&E, it's about $75 million a year and leases are about -- occupancy cost is about $180 million between those 2. So by the time you throw in some median expense in there, that's why you can't look at that $24 million purely against the $75 million.

Got it. And then lastly, I guess one thing I'm kind of trying to understand is the way that all this rate and exposure -- maybe a tutorial, I guess how property works in general. Like I get that if you're a hotel, you're still in business, you're probably paying more, right, because pricing is up. You haven't shut anything down. So looking for a tutorial there. And I guess, like just an open question. If Gallagher to reduce its real estate footprint by 50%, how much less would you guys be spending on property insurance?

Well, our property insurance costs are negligible, Ryan. I mean we're in high-rise buildings that don't typically burn, that are well sprinkled. But I think the -- let me try to get to the gist of the early part of your question, then Doug can answer the question on cost saves around real estate. It's a pretty simple equation with property. You've got a piece of property that was built. Remember, property is not insured for the market value. Property is insured typically for construction rebuild costs, replacement costs. You can buy it on an actual cash value, but that's kind of a dumb thing to do. And you buy it based on what it would cost to replace it. You have co-insurance, which means you've got to basically pay for the whole value of the property. You can't say, I'm going to buy -- I got $1 million building, I only buy $0.5 million because the insurance companies say, that's not fair. They got to get premium on $1 million, you pay that. Now in typical times, based on your location, whether there's flood exposure, whether it's fire exposure like California or whether there's other exposures like hail and snow, those prices are built into package quotations and typically are filed rates with the individual states. When you start to get into businesses like, well, let's call it, dynamite manufacturing, well, guess what? They haven't filed rates for that. And those businesses won't typically be insured in the standard market. They've got excess and surplus to risk placement services for help on difficult-to-place risks. That's not rates that are filed. That's free-to-form and free-to-rate, and that's just up and down with market. So bottom line is most property long term at the operating level middle-market and small accounts is pretty steady. Times like this, you might see those filed rates going up 3%, 4%, 5% because they've got to get out in front of that social inflation. But times like this, when you are in the excess and surplus market or a hard-to-place risk, those are going to jump by underwriter appetite. And that's a tutorial in 2 minutes that I hope helps.

In terms of our cost for property insurance, remember, most of the time, we're -- or in fact, in almost all of our locations other than our headquarter building is -- we're the lessee and the landlord pays for the property risk. Generally, with that, we might buy the content cover on that, but by and large, that's the landlords' expense.

But like how linear is a -- like if we think about other businesses shutting down 25% of their real estate footprint, how linear should we think about that in terms of how that translates to exposure?

One of the things we love about that, Ryan, is they still buy the insurance because they got a building sitting there.

Yes. Unoccupied buildings are actually more costly to insure than occupied buildings. So...

So overall, like the property organic, I'm guessing has year-to-date been well above what the retail P&C brokerage stated organic is correct?

Well above. I would say, it's probably running a 1.5x or 2x, but not like 4, 5 or 6x.

Our next question today is coming from Mark Hughes from Truist Securities.

You had talked about the growth trajectory 2018 to 2022, and I think you made some reference to next year. Did you say you think margins should improve next year-over-year?

Well, Mark, I think it will be hard to improve margins next year. The question is, can we hold them? I mean we were up 400 basis points, 500 basis points, 600 basis points. I just -- next year is hard to look at. What do our clients expect from us? What's happening with unemployment? Where are we in the organic curve? If next year, organic pops up again to where we're running 5% to 6% before COVID. We're going to be traveling more. We're going to be making investments in technology. We're going to probably be needing to go into some outside labor and rehire some folks right now. We've been letting attrition do a lot of our work there. And if people get back into our office. But still, if we get back to that 6% organic growth, we will keep some of these savings. And then you would see kind of that natural 70 to 100 basis point margin improvement. Below 3%, hard to improve margins. Between 3% and 4% and 5%, you can get some. When you start getting over 5% organic, you're going to naturally have margin improvement in this wage environment that we're seeing right now that could be well over 1 point a year. So I think that would give some of this natural savings that's happened back, but we'd probably then just have the natural glide path of margin improvement as we get better and better every day. So back to Allison's question at the beginning of the -- or excuse me, Elyse's questions at the beginning of the call, there's just some forward glide that will happen naturally, especially if we get in that 5% to 6% organic range.

Yes. Thanks for that clarification. On -- Bill talked about the winnings and business as a fresh alternative to bigger competitors. I thought that was interesting. And with the merger presumably coming, what's your latest thoughts, either Bill or Pat, on what that could mean for your business?

Yes. We feel really good about potential because of the merger that's going on. There aren't a lot of our competitors that actually have the capabilities that we've invested in over the years. And as I mentioned, the levers that we're bringing to the table with Gallagher Better Works, we've really outflanked the smaller competitors time and again. We're coming up with innovative ideas to these larger employers that have traditionally gone with the bigger names, but they love our entrepreneurial spirit and innovation and roll up the sleeves and get it done. And so we're winning a lot of deals that way. We're very bullish about the opportunities not only for winning new business, but potentially recruiting talent out of this merger as well.

And Pat on the P&C side?

Mark, do you know how I feel about that. I mean you listened to a guy who's been very strategic over the last 30 years. We've gone from 13 to what will be 3 by basically keep it to our knitting and let the others combine. And whenever that happens, it creates tremendous opportunities for us across everything we're trying to do. Bill mentioned the fact that we've out flanked the smaller players. They can't compete with data and analytics. They can't compete on expertise in our verticals. And frankly, when you've got massive organizations coming together, the opportunity to -- for people to look and say, well, maybe there's a -- maybe I'd fit better at Gallagher, is right. And so it -- once again, when there's change and consternation, that's good for us. And on the operating side, in terms of doing business, it really -- there's an awful lot of competition in that. In the small broker community, there's still probably 19,000 agents and brokers in the United States, some would say more than that. But those with any real capability are going to really now go down to 3, maybe 4.

And then the kind of small bore question, but you mentioned the strength, both you and Joel, about professional liability. Any quick summary on what's going on in health care liability, health care professional liability?

Yes, Joel will.

Yes. It's a lot of segment by segment as things have transitioned in the hospital space to other areas. And really, when you look at it from a professional liability standpoint, and I guess we could expand that to D&O or other areas, but if you stick with health care itself, the market in assisted living and long-term care, then they are in a pretty difficult spot as far as the premium and rate increases. Moving into D&O, I think you've probably read and seen, that is probably the most difficult part of our industry as respects rate and term changes, and we really aren't seeing any let up in that at all.

And then a final question on the workers' comp claims. If you could give us a sense year-over-year in 2Q, how much was workers' comp down in terms of claims? And then so far in 3Q year-over-year, how is that trending?