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

Good morning, and welcome to Arthur J. Gallagher & Co'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, including answers given in response to questions, may constitute forward-looking statements within the meaning of 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 filing. 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, Jr., Chairman, President and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Thank you, Robin. Thank you, everyone. Good morning, and thank you for joining us today for our quarterly investor meeting. This is the fourth time we're doing this meeting virtually, and we plan to continue these meetings since we believe they are useful for new investors to get quickly up to speed with our businesses. And for those of you that are familiar with the Gallagher story and have followed us for some time, you can get a concise business update from the last time we spoke at the end of January. The format today will be similar to our recent IR meetings. After my opening remarks, each of our business leaders will speak for 5 to 10 minutes describing their business, while touching on topics like organic, M&A pipeline and other market factors. Our leaders will also provide you with some observations from what they are seeing in their first quarter and how they are thinking about the rest of 2021. Then Doug will wrap up with some financial commentary. Our prepared remarks should last around an hour in total, and then we'll open up the line for Q&A for those of you who are dialed in. It's hard to believe that a little over a year ago, 372 days to be exact, the World Health Organization declared COVID-19 outbreak a pandemic. And since the pandemic began, our team has worked tirelessly to ensure the health and safety of our colleagues. That does remain our top priorities, our management team -- of our management team. And overall, we continue to be a healthy group. Our thoughts and prayers go out to all those that have been impacted by the virus in some way, including our colleagues, clients, carrier partners and their families. As I think about the past year and our performance, I'm extremely proud of how the team has responded during this unprecedented period, how we rose to the occasion. We continue to service our clients, sell new business, look at merger acquisition opportunities and most importantly, our bedrock culture continues to thrive, even while physically apart. Overall, the company's priorities for 2021 are the same for that we have articulated pre pandemic. First, to grow organically. Second, to grow through mergers and acquisition. Third, to increase our productivity, improve our quality. And finally, to maintain our unique Gallagher culture. Most of the comments I will focus on organic, mergers, market conditions, while Doug will address productivity and quality in his comments. Starting with organic. I am bullish about our prospects to deliver organic that is better than last year's level and improves as the year progresses. A lot of that is based on vaccines being administered in the U.S. and abroad, which is positioning the global economy for a strong recovery through 2021. And our team is ready to rise to the occasion again to help businesses navigate rising loss costs, PC rate increases, tightening turns and conditions, more limited insurance capacity and the war for talent as businesses are now having to rehire workers as the economy recovers. And remember, we focus on middle-market clients, and about 90% of the time, we're competing against smaller brokers that just don't have the expertise, capabilities and data to successfully help their clients manage the current insurance and economic environment. Our leaders will walk you through their respective value propositions, but needless to say, I really like our competitive position. Moving to mergers and acquisitions. We expect 2021 to be an active year. Our global platform is a great fit for savvy and entrepreneurial owners looking to use our tools and data to grow their businesses, support their current clients and advance their employees' careers. A strategic partner like Gallagher can help them succeed. When I look at our M&A pipeline, we have more than 35 term sheets signed or being prepared, representing approximately $300 million of annualized revenues. While we know not all of these were closed, we believe we'll get our fair share. Each of our division leaders will go deeper into their businesses, but let me give you a global top-down perspective on 2 topics. First, the PC rate environment; and second, I'll touch on new and lost business and exposure unit changes. PC pricing continues to rise in most geographies and product lines around the globe and the increases we are seeing in January and February are, in many cases, similar to or even slightly higher than fourth quarter 2020. At the same time, capacity is shrinking and terms and conditions are becoming more difficult. There are also quite a few pockets that I would even describe as hard, such as cat-exposed property, umbrella and D&O, but not likely early to -- but not likely early 2000s hard. By line of business, property pricing overall remains the strongest, with rate increases of 11%, followed closely by professional liability. Casualty rates are firm in most geographies and are up around 5% globally. And workers' comp is now about 1% up in the quarter. Across our global PC book, rate is even a touch higher relative to the fourth quarter. So we're seeing pretty consistent increases over the past couple of quarters. And insurance companies are making a case that the current rate environment has legs, setting elevated natural catastrophes, impacts of the pandemic, social inflation, low investment returns and the potential for increased claim frequency as economies recover. So I think rate increases are likely to persist for some time. That's when our team shines. Our job is to make sure our clients get appropriate, well-structured insurance cover for their risk tolerance at a fair price. Turning to business trends, retention and mid-term policy adjustments. Here's what we are seeing in our PC book of business through the first 2 months of the year. First, new business production remains excellent, in the double digits as a percentage of trailing revenue. Second, client retention remains nicely in the low mid-90s for most of our retail PC operations. Third, full policy cancellations are pretty much unchanged versus last year's first quarter. Finally, through yesterday, endorsements, premium audits and other mid-term policy adjustments remain a net positive overall as customers are adding coverages and exposures to their existing policies. This went negative last April, but has been running positive since then. Always a good sign. So I'll foreshadow some punch lines you'll hear from the team today. You'll hear Mike Pesch tell us how our U.S. retail PC business is performing very well. New business is excellent. Retention remains strong. Rates are similar to the fourth quarter 2020 and renewal premiums are higher year-over-year, which suggests rate is more than offsetting any exposure unit declines. Tom Gallagher will tell you that our international PC operations are performing quite well, too. Canada remains a stand out with fantastic new business production and a nice tailwind from rate. Growth in Australia and New Zealand remains modestly positive, and U.K. growth is in the mid-single digits with specialty performing better than retail so far. Then Joe Cavaness will tell you about the fantastic growth we are seeing in our open brokerage wholesal,e, intermediary, risk placement services. The MGA program and binding businesses are seeing some growth, too, but only modestly positive due to slower new business startups. We're seeing more economic activity and continued double-digit rate increases. Bill Ziebell will then talk about our employee benefits and HR consulting business. Unemployment levels continue to weigh -- pardon me -- continue to weigh a bit on covered lives within our traditional medical, dental and vision benefit operations. Many of our benefits consulting practice groups, such as retirement, pharmacy benefits and fiduciary services have been mildly impacted by the pandemic. HR consulting remains soft as many projects continue to be on hold. Looking forward, we expect to benefit from a recovering labor market and some additional consulting work perhaps picking up in the spring. Scott Hudson will take you through our third-party claims administration business, Gallagher Bassett. He will tell you it looks like -- he will tell you it looks like 1 more quarter of a tougher pre-pandemic comparison here in the first quarter. So organic should be about flat. Yet the rebound in employment and economic activity comparisons get easier for the rest of the year. Scott remains confident Gallagher Bassett will deliver full-year organic growth closer to pre-pandemic levels or mid-single digits. Then next, CFO, Doug Howell, will bring it all together to tell you what we think this means for our first quarter. He will also give you an update on our expense savings and how we see 2021 playing out. So from my vantage point as CEO, we are executing extremely well. 2021 is setting up to be a better organic year than 2020, perhaps back to or even better than pre-pandemic levels. Our merger and acquisition pipeline is robust, and I believe our productivity and quality initiatives can help hold a lot of cost savings from 2020. And our unique Gallagher culture is as strong as ever. Bottom line, I think we're positioned extremely well for 2021 and beyond. I'll stop now and turn it over to Mike Pesch, who is going to discuss our U.S. retail PC operations. Mike?

Thanks, Pat, and good morning, everyone. As Pat said, my name is Mike Pesch, and I'm the leader of our U.S. Retail Property/Casualty Brokerage Operations. My comments today will focus on 3 topics: first, I'll start by providing you an overview of the business; second, I'll discuss current market conditions, including the rate environment; and third, I'll conclude with some observations from January and February. So let me start with an overview of our U.S. retail PC operations. In 2020, we generated around $1.7 billion of revenue, which positioned us as the third largest PC retail broker in the country according to Business Insurance. We placed more than $10 billion of premium annually through about 160 offices and have approximately 7,000 employees, including nearly 1,800 in our centers of excellence. Our operations are focused on middle to upper middle market commercial clients, which means they're typically placing between $100,000 and $2.5 million of premiums for each one of our customers. That translates into roughly $10,000 to $250,000 of annual revenues per customer. We also have a decent-sized small and commercial, personal lines and affinity customer base as well. Our core middle-market clients typically don't have a dedicated risk management team to oversee the structure and purchase of their insurance coverages. And that's important because those businesses have needs for an outsourced risk manager, a trusted adviser versus someone to only complete a transaction, placing insurance coverage on their behalf. That aligns closely with our client value proposition called CORE360. It's the approach we take when we evaluate our clients' risk management program. We focus on 6 key cost drivers of the company's total cost of risk, including program structure, coverage gaps, uninsurable losses, loss prevention and claims, contract liability, and of course, premiums. CORE360 positions us as an outsourced risk manager. It embeds Gallagher inside the client's business, and it's really how we differentiate ourselves as a broker. We find that this approach resonates with clients looking for a holistic risk management solution and advice. Our operations are organized around 30 niche practice groups, industry and product verticals that we have developed depth expertise and specialized insights. And we see our specialization as a competitive advantage, allowing us to better understand the unique risk characteristics of our clients' business and tailor products and services to those industries. Our niche leaders support our producers and make sure that we're addressing distinct risks and challenges that those industries are facing. 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 non-for-profit faith-based organization. Ultimately, this tailored approach helps us retain customers and drive new business over the long run. Our data shows, as Pat said, 90% of the time, we are competing against brokers that are smaller than us, and our niches cannot be matched by our primary competitors: smaller, regional and local brokers. Most of our U.S. retail colleagues continue to work from home, and our producers have adapted well in how to sell. They are leveraging webinars, online industry discussion and deep product guides that are generating new revenue opportunities and client leads. Since the onset of the pandemic through the end of February, we have hosted more than 50 virtual webinars with more than 12,000 attendees. The largest event was called Denver at Your Doorstep, replaced the 2020 Global Rooms Event, which was canceled due to the pandemic. They had a great turnout, and we are currently working on our 2021 event titled, Navigating Now. It's a series of 6 webinars that will provide clients and prospective Gallagher clients insights on the critical management topics they need to know in 2021. On top of this, we are continuing to add content to our online on-demand webinars on our website, ajg.com. These include Gallagher's global practice cyber series, COVID-related topics like return to the workplace or protecting the workforce, balance sheet and how to combat fraud. These prerecorded sessions allow clients and prospects the ability to tap into our niche practice leaders and product expertise at any time, any day of the week. And producers are notified when a client or prospect engages with anyone online. We continue to see entire engagements being done in a virtual environment, from initial pitch to close. Our 30 niche leaders and hundreds of products experts have been busy getting in front of clients in a virtual setting. They have more time for these types of interactions since they are not spending countless hours traveling to prospects' meetings or attending dinner pitches. And we have the internal tools to effectively pull the right experts from anywhere around the globe. And Gallagher Drive, our data and analytics platform is becoming a key difference in our offerings to our clients, especially when competing against the local or regional brokers. Our producers are able to show our clients and prospects deeper insights into the buying behavior of other Gallagher customers, including what coverage types and limits are being purchased. For me, it's really exciting for me to watch our producers compete and win during the pandemic. Moving on to M&A. We have a long successful track record and M&A continues to be an important part of our growth strategy. Most of our merger partners are the result of relationships that have been built at the local level. So we know these entrepreneurs well and understand their culture. And we want the right fit, so we take our time, looking for the right partners. Teams that want to be with Gallagher for the long term. Looking beyond the Gallagher culture, partners are drawn to the tools, expertise and resources that we can provide them. We target firms generating between $5 million and $10 million of annualized revenues. And in 2020, we completed 11 U.S. retail mergers with annualized revenue of about $100 million. Thus far in 2021, we have completed 1 merger and continue to have a very full and growing M&A pipeline. With tough P&C market conditions in the U.S. and the potential for tax changes next year, I think our pipeline is poised for further growth. Moving on to productivity and quality. Our operations remain in great shape. We've been on a decade-long journey to streamline workflow, standardize processes, leverage our centers of excellence and move onto a common agency management system. And those were very deliberate strategic actions that have resulted in a faster, leaner and more productive organization. Through 2020, the team also did a fantastic job to preserve and better yet grow our EBITDAC profits. While we benefited from the natural contraction of travel and entertainment expenses, our focus on operational excellence and further operating expense saves really helped drive margins and EBITDAC higher. What I'm even more excited about is the acceleration of automation projects, which should help us improve quality and position us to make future investments. Investments in analytics, tools and new production talent all geared towards growth over the long term. Now moving on to my second topic, the market and the U.S. retail pricing environment. U.S. market continues to be very difficult. While not every hard market is the same, nearly every area and line of business is firm and even a few lines that are hard. Terms and conditions have tightened and finding capacity in some lines is difficult. Overall, first quarter price increases in the U.S. are very similar to fourth quarter 2020. Thus far in the first quarter, property pricing is up 16%; professional liability, up 10%; casualty, up 9%; workers' comp is about up 1%. Looking forward, it feels like U.S. rate increases should continue at a similar pace giving carriers concerns of social inflation, increased natural catastrophe activity and still low interest rates and more difficult reinsurance conditions. So the market is increasingly challenging for our clients. But remember, our job as brokers is to help our clients mitigate price increases by shopping coverage and tailoring clients' programs with increasing deductibles or reduced limits to ensure their risk management program fits their budgets. And finally, I'll conclude with some specific thoughts from what we are seeing in the first quarter. Organic held up pretty well during 2020, about 5.5% in the first quarter of 2020 and then 4% in the second and third quarters and 4.5% in the fourth quarter. So call it 4.5% for the year. Based on what we are seeing thus far, I think first quarter organic will be better than fourth quarter. Underlying our view are the following trends from January and February. First, new business remains strong and is running a little less than 1 point better than 2020 levels. Second, retention is slightly lower relative to last year, but within 0.5 point. Mid-term policy adjustments are running similar to pre-COVID levels. Most of the mid-term adjustments are coming from policy endorsements as companies reset their coverage, while premium audits and full policy cancellations are slightly lower than prior year. First quarter renewal premium dollars, which captured both rate and exposure are higher relative to last year. So to the extent we are seeing exposure units decline, rate is more than offsetting the decline. Every major line of business is showing year-over-year increases in renewal premium thus far in the first quarter. The business is very well positioned for 2021. Retention and new business levels remain excellent. Rate increases have legs, and exposures are well off to the second quarter 2020 lows. This market backdrop, combined with our client value proposition and superior service, our competitive position has never been stronger. 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 PC brokerage operations. Tom?

Thanks, Mike, and good morning to all of you on the call. My name is Tom Gallagher, and I lead our global property/casualty brokerage business. Mike just walked you through the domestic side. So I will tackle the international portion of our business today. I'll follow a similar cadence as Mike's business and speaking to our recent performance. Then I'll cover the PC pricing environment outside the U.S. and close with some data points from the first 2 months of 2021. Starting with an overview of the business. We finished 2020 with approximately $1.7 billion in international PC revenues and replaced more than $10 billion of premium on behalf of our clients. We have a diverse group of businesses internationally. And while we have about 300 offices in nearly 50 different countries, 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, personalized affinity and a large account risk management business. We also have a leading London specialty broker and a reinsurance brokerage business called Gallagher Re. Let me break down our revenues by geography starting with retail. In the U.K., we are a top 5 retail broker, generating about $400 million of revenue annually. Like our U.S. counterparts, we utilize a niche specialist network and have more than 75 offices, mostly in smaller cities. Moving to Australia and New Zealand. Combined, we have around $350 million of revenue annually. We are the largest retail broker in New Zealand and a top 5 broker in Australia. Jumping to Canada. We have about $200 million of revenue with operations in 7 out of the 10 provinces. Outside of retail, our London specialty and reinsurance platforms are another $500 million of annual revenue. Our international growth strategy, by design, mirrors the successful path of our U.S. business that Mike spoke about. We're driving growth by leveraging our niches and best practices across geographies, porting and integrating M&A opportunities and using our operational excellence to capitalize on scale advantages. We found, in many instances, our teams are doing in a particular geography can be tailored, applied and delivered to our retail clients anywhere around the world. For example, CORE360 has morphed into our global value proposition. We're beginning to offer our SmartMarket platform to carriers in the U.K., Canada and Australia. And our Gallagher Drive platform outside the U.S. more and more. But ultimately, it's a 2-way street. Our U.S. operations are implementing innovative sales and service ideas from their international colleagues. And our cohesive global strategy allows us to further leverage content, insights and thought leadership. This is a key advantage of the smaller local brokers, those that we are competing with most of the time. These firms just can't match our offerings. Internationally, our expense saves has resulted in a nice EBITDAC growth over the last few years. While a portion of our 2020 savings continued to be driven by the natural contraction of travel and entertainment expenses, we have also further leveraged work in our centers of excellence. As I mentioned last time, international use of our centers of excellence has increased at a higher pace relative to U.S. retail since the outset of the pandemic, and this is by design. The shift in our workforce was planned and set in motion pre COVID. The team has done an excellent job of accelerating our strategy. And while we think there will be long-term savings, more importantly, we believe this will have positive implications for quality, which was the original reason we created the Gallagher Service Center, to begin with. Moving to mergers and acquisitions. Our story is resonating in international markets and we are seeing a large number of merger opportunities outside the U.S. Our culture, support tools specialisms, access to data and analytics resonate with international entrepreneurs. Partners who want to take their firms to the next level, grow their book of business and give their employees' career paths. Partnering with Gallagher can offer them great opportunities. This year, we completed 2 international mergers, including Bollington, which nicely expands our U.K. retail footprint into the Northwest, where we only had a very small presence. Looking forward, our current M&A pipeline includes some nice opportunities in the U.K., Canada, Australia and a few other countries as we look to gradually and thoughtfully expand our global footprint. Moving to organic. Margins and pricing environment, let me walk you around the world. Prior to COVID, our U.K. retail organic was running nearly 5%, and adjusted EBITDAC margins were in the low to mid-20% range. Exposure growth was modest and PC pricing was increasing about 4%. 2020 organic ran a couple of points below pre-COVID levels, while EBITDAC margin improved with our cost savings efforts. Within London Specialty, pre-COVID organic was high single digits and margins were nearly 30%. Price increases were 5% to 10% across most lines of business. 2020 organic was high -- was mid to high single digits as pricing remained closer to double digits, while margins also improved. Moving to Australia and New Zealand. 2020 organic was in low single digits. We're seeing some rate here but the increases are not as robust as what we saw during 2019. EBITDAC margins are still nicely above 30%. Canada posted excellent results in 2020 with organic north at 10% and margins well above 30%. The team is executing extremely well and driving excellent new business. The rate increases are more than offsetting exposure declines, particularly in property, professional liability and commercial audit. So let me finish up with some first quarter 2021 observations. Focusing on our renewals, so far in the first quarter, price increases are broadly offsetting any exposure declines. Canada is seeing the highest premium changes driven by property and professional liability lines. Australia and New Zealand renewal premiums are also higher year-over-year. Call it low single digits, suggesting price increases are just about offsetting any exposure declines. Moving to U.K. retail, we are seeing renewal premiums up in property and professional liability lines, offset by negative premium changes in casualty and commercial auto. Overall, premiums are about flat with rate increases in the low single digits, offsetting exposure declines. In terms of new business, retention and mid-term policy adjustments, overall, 2 months into the first quarter of 2021, I'm seeing new business 1 point better than last year, retention is 0.5 point lower and no significant impact from mid-term policy adjustments. By geography, our Canadian business continues to lead the pack with new business north of 15% of trailing revenues and retention pretty similar to prior year. In the U.K., retail is posting new business, a couple of points better than last year and retention trends are similar relative to a year ago. When I look at our London specialty operations, I'm seeing strong new business and retention is holding up well. In Australia, new business and retention are trending at similar levels to last year. And finally, New Zealand. New business is up about 1 point, and retention is off by a similar amount relative to 2020. So with excellent new business, strong retentions and overall earnings, I see first quarter organic around 5%, which is better than the fourth quarter of 2020. In summary, we feel really good about our international business. I'm pleased with the team's solid retention and new business production, and the market is showing signs of improvement. Exposures are recovering off the Q2 2020 lows and mid-term policy adjustments, including full policy cancellations remain insignificant. Our producers are hard at work to offset price increases for our clients. However, pricing, which varies by line of business and country, continues to provide a tailwind to our readiness. Bottom line, I am extremely optimistic about 2021 and beyond. Okay. I'll stop now and turn it over to Joel Cavaness, who is going to discuss our domestic wholesale operations, known as RPS. Joel?

Thanks, Tom. Good morning to everyone. I'm Joel Cavaness, and I'm the leader of our U.S. property and casualty wholesale intermediary, Risk of Placement Services or RPS for short. My comments today will focus on 3 topics: first, I'll provide an overview of our business; second, I'll move on to some comments on the wholesale property casualty pricing; and third, I'll wrap up with some observations related to our first quarter. RPS was started from scratch in 1997 and has since grown to the fourth largest wholesale broker in the United States. We have about 2,300 colleagues. We finished 2020 with approximately $450 million in annual revenue, and we placed more than $4 billion of premium on behalf of our clients. Unlike the retail business, as a wholesaler, our customers are not businesses themselves, but rather, independent agents and brokers that need our capabilities, our products and our carrier relationships. About 75% of our business comes from other non-Gallagher agents and brokers with the balance coming from Gallagher retailers. So let me walk you through our 3 key businesses, which are open brokerage, MGA and programs and standard lines aggregation. I'll start with the open brokerage, where here, we're helping retail brokers who are having a difficult time placing a line of coverage or need access to the specialty coverage or markets that they don't have. We generally go out to the market and we negotiate with carriers on behalf of the retailer and their client. It's a very specialized and it can range from hard-to-place coverages like flood, earthquake or coastal property or in casualty lines like long-haul trucking or liquor liability. Many times, these placements are very complex with multiple carriers and multiple layers involved. Moving on to our MGA and program business. Here, we underwrite, we price, we bind and we collect premium and issue the policies but we don't take any underwriting risk in that business. We have about 40 different programs, both commercial and personal lines, focusing on very specific types of entities or types of coverage. Our commercial lines programs range from public entities to country clubs, to amateur sports, and our personal lines programs include lines like nonstandard auto, manufactured homes and low-value dwellings. And finally, we have standard lines aggregation, where we provide smaller retail agents access to admitted products from a particular carrier. For example, a local agency in a small town may not have a direct deployment with larger carriers like Chubb. However, that agency can still access Chubb products through us. In essence, it gives that smaller agency more and perhaps better insurance options for its customers. Our goal overall is to be a recognized leader in the intermediary market by providing a wide range of services across a very large and distribution platform. We compete with many different wholesalers. And ultimately, we win because of the speed of our response, the ease of doing business, the breadth that we have and the strength of our carrier relationships. Mike told you that U.S. retail property casualty rates are increasing, capacity is shrinking and terms and conditions are becoming more difficult. This environment is making RPS even more useful to retailers as they need our help placing their clients' coverage. As a result, we're seeing more opportunities and submissions in the current environment. We're seeing similar trends on our award-winning e-commerce platform as well. Last year, policy accounts bound on our platform were up more than 30% and we are seeing positive momentum carrying over into 2020. Today, we offer retail agents more than 25 products in e-commerce and we're adding to that list, like our brand-new home-based business product or cyber insurance for tech companies. We expect our products suite will continue to grow over time, making us even more of a one-stop shop for retailers. Going forward, as retail brokers shift more to an instant gratification model using a digital platform, RPS will continue to be there to meet their needs. Outside of our leading digital strategy, our teams are executing very well. We're designing programs, finding markets and maintaining fast turnaround times. We continue to win new business and support and retain our current customers. We, too, are a seasoned acquirer. We look for partners that fit culturally, add expertise or incremental products to our business and can provide us with additional M&A opportunities. M&A partners choose RPS because they realize that together, we can make investments in data, and we open doors to over 30,000 retailers. Our wide distribution, combined with the current E&S market conditions, is driving more opportunities. RPS has completed more than 50 acquisitions since 2000, including 3 in 2020 and 1 so far in 2021, which was Atlas General Insurance Services. Atlas is an MGA and program administrator that generates more than $30 million of annualized revenue. They give us a best-in-class California and U.S. workers' compensation program, and they have deep specialty market expertise. Needless to say, just a really good fit, and we're excited to have them join RPS. So moving into the pricing environment. Wholesalers tend to see rate increases a little more sharply than retailers, so add at least a couple of points to what Mike is seeing. Our data is showing open brokerage rate increases of 12% in both January and February, which are pretty similar with fourth quarter rates. This includes double-digit increases in property, professional liability, casualty and marine. In our binding operations, rate increases are a little less positive, but they have similar trends by line of business, including property, professional liability, which are seeing the most increases, followed by Marine. Capacity remains pretty tight, specifically for umbrella. That's likely the result of social inflation and the increasing prevalence of litigation finance and, to a lesser extent, professional liability. Fewer carriers are willing to quote these lines of business and those that ultimately do quote are reducing the limits that they're offering. So overall, very, very difficult market, but we are still getting most risks placed. So let me give you a sense of what we're seeing so far through the first 2 months of the quarter. First, premiums on renewal business are up year-over-year in both January and February. Renewal premium increases continue to trend in the double digits within our open brokerage business, which continues to suggest pricing is well in excess of and it's offsetting any exposure to clients. On the binding side, renewal premium increases are up mid-single digits as we're just not seeing quite as much rate in that business. New business is down 1 point over last year with trends within brokerage way better than last year and binding, not quite as strong. Retention rates are higher by nearly 1 point relative to overall last year. So combined midterm policy adjustments, premium audits and full policy cancellations are very similar to pre-COVID levels. So when I bring this all together, as we sit here today, it feels like first quarter organic will be in the 5% to 6% range. So as I look ahead and further into 2020, I remain very encouraged, and I'm going to tell you why. First, the economy seems to be on an upswing. We are seeing more commercial trucks on the road and then all-in commercial trucks are being added back to policies. Overall, open brokerage positive policy endorsements so far in the first quarter are higher than what we saw a year ago. Second, there has also been consolidation in the wholesale brokerage space. And any time there's disruption, it creates opportunities for us. So I think we're in a position to pick up some additional business and also additional people. Third, we're seeing some great things around technology and data. I spoke about our growing e-commerce platform earlier, and I'm just as excited about the rollout of our SmartMarket to our initial group of carriers. While we've only been live since January 1, the feedback from our carrier partners has been very positive. And fourth, U.S. wholesale pricing is showing no signs of slowing down. We're hearing from many carriers that they still need more rate in cyber, professional liability and umbrella. And as you heard Mike say earlier, workers' compensation is also showing some rate improvement. As I said last quarter, I think the business is in great shape. We're seeing strong organic growth in open brokerage, while organic and MGA and binding business is trending better. We have solid new business, excellent retention and we're not seeing any significant weakness in the health of our clients' insurers. We have a very efficient and scalable platform. We continue to invest in content and capabilities, and I feel really good about our business, our strategy and our competitive position. Needless to say, I'm extremely optimistic about the future. So with that, I'll stop now, and I'm going to turn it over to Bill Ziebell, who's going to discuss our employee benefits consulting business. Bill?

Thanks, Joel, and good morning. I'm Bill Ziebell, and I lead our employee benefits and HR consulting business also known as Gallagher Benefit Services, or GBS for short. My comments this morning will focus on a few topics. First, I'll provide an overview of GBS, give you some insight on how we are executing differently during the pandemic and then I'll walk you through some takeaways from the first 2 months of 2021. GBS began in the mid-'70s and has grown to be the fourth largest benefits broker and HR consultant in the world, with 4,500 colleagues and around $1.3 billion of revenue generated during 2020. We have about 100 different locations spread across the U.S., the U.K., Canada and Australia. However, roughly 90% of our revenues are domestic, 10% are international. Our producers sell traditional insurance products like medical, dental, vision and voluntary insurance products that employers provide to their employees. We also advise on employer benefit plan design, financial projections of these plans and potential funding alternatives. That's the bulk of our revenues, call it about 75%. The other 25% comes from HR and compensation, planned consulting, pharmacy, benefit management consulting, retirement plans, executive benefits and other services that help employers address their human capital needs and organizational well-being. Similar to our retail P&C counterparts, we, too target middle market employers, which we define as an organization that have somewhere between 100 and 5,000 employees. Most of the time, we are competing against local or regional benefits firms and we provide our clients 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. Within GBS, our value proposition is called Gallagher Better Works, which examines all the levers that an employer has to attract, engage and retain talent. Gallagher Better Works explores the full spectrum of employee benefits and organizational well-being, from how to maximize the workforce by investing in physical and emotional health to financial well-being and how employers can offer competitive compensation plans. We tailor solutions that address and maximize all of these based on our clients' strategic human capital objectives. Our clients value holistic approach and recommend us for our resources, our thought leadership, strategic thinking, client-first approach and our high level of service. Our pre-COVID benefits strategy and benchmarking surveys showed that attracting and retaining talent was the top priority for most employers, while lowering costs was secondary. Not surprisingly, during our 2020 survey showed business continuity and cost control jumping ahead as the top 2 objectives for many businesses. While our goal at Gallagher Better Works is to help employers maximize productivity of their workforce, cost is always a factor. And so we are also focusing on strategies to lower cost. Moving to mergers and acquisitions. We, too, are actively engaged in mergers and have a very long successful track record. Since 2010, we have completed more than 165 mergers, including 8 during 2020. Merger partners are drawn to Gallagher by our numerous specialized practice groups, niche expertise, marketing initiatives, thought leadership and technology. They want and need these resources to be successful, and our pipeline of potential merger partners continues to grow. We think 2021 is likely to be another active year and have had a very nice pipeline of opportunities around the globe. A year into the pandemic, nearly all of our colleagues are still working from the home. Despite being physically apart, we have not missed a beat operationally. Earlier, Mike spoke about how his team is delivering expertise at the point of sale, and we are having the same success in this environment. We have many examples where entire engagements have been done in a virtual environment or experts were brought in virtually to help win new business. It's really exciting to see these types of sales happening all around the business, and we are learning from our experiences. And the team created a virtual selling playbook for our production force that consolidates best practices on such things as camera angle, lighting, background, sound check rehearsal and so forth. And it reinforces and aids in identifying prospects, setting production goals and emphasize the tools and resources available. Utilization of the playbook is increasing in the field, and we continue to receive positive feedback from our producers. We also recently released our 2021 state of the sector survey which summarize responses from nearly 800 organizations in 45 different countries, highlighting communication changes companies were making in response to the global pandemic and shed light on best practices for engaging, motivating and retaining talent. We've seen many new leads following nearly 800 downloads of the survey. Our team continues to host monthly town hall discussions, bringing our thought leadership to a wide group of clients and prospects. Topics have ranged from terms of workplace, compliance, a vaccine and to managing open enrollment in a virtual setting. These informative and interactive sessions have drawn a lot of interest with well over 15,000 clients and prospects participating. Whether it's leveraging our niche experts, thought leadership or hosting in-depth industry discussions, all these efforts separate Gallagher from the smaller regional brokers and consultants we are competing with on a regular basis. Let me finish up with some thoughts on January and February. I'll start in the U.S. Recall that's about 90% of our revenues and 80% of that is the typical coverage as you get via your paycheck and your employer: medical, dental, vision and voluntary products. At January 1 renewals, not surprisingly, we saw year-over-year headcount declines, but not as much as the year-end U.S. unemployment rate at 6.8% might imply when compared to the 3.6% unemployment rate back at the end of 2019. So our U.S. health and welfare business is showing some continued pressure from the economy. However, we have been a little more insulated from the domestic labor market weakness, given our business mix. Remember, we are focused on the higher end of middle market our business includes more resilient employers like higher education, public entities and religious institutions. And we tend to be underweight in the harder-hit industries like retail, restaurant, hotels and hospitality. So it makes sense that our clients would see covered lives down less than the overall labor market. A couple of more observations worth making about the current environment. First, the clients didn't make any significant changes to their 2021 [indiscernible] plan. We did see some clients chip a little more of the cost to their employees, but even that wasn't a widespread trend by employers. Second, we continue to see very little business failures. So it seems that most of our clients have successfully navigated the pandemic and the resulting economic softness. Third, retention remains 1 point or more better than January and February of 2020. And finally, we are seeing medical claims rebounding towards pre-pandemic levels. We are watching closely for trends resulting from COVID. While it's delayed the elective procedures, reduced visits or treatment for chronic conditions or increase in metal health claims. We're also tracking the potential claims impact on those contracted COVID-19, including an increased use of or new use of asthma medications and services. Now moving to the other 20% of our U.S. revenues, which is our fee-for-service business. Most of our practice groups continue to be only mildly impacted by the pandemic and are holding up, but our more project-oriented HR consulting practice group is down about 30% year-over-year from April '20 to February '21. Here, we continue to see discretionary assignments and other one-off consulting engagements being delayed or reduced in scope. Looking forward towards the balance of 2021, we do expect to benefit from a recovering labor market as vaccines are rolled out and economic activity picks up. This should lead to more traditional insurance product revenues and some additional consulting work perhaps beginning to pick up in the spring. Now moving outside the U.S., which is about 10% of our total revenues. In the U.K., we are forecasting first quarter organic to be flat to down single digits, which is a good result given the country remains in and out of lockdown. This softness is likely to offset by Canada, where we continue to expect organic growth. And we are expecting flattish organic in Australia. So when I combine domestic and international, first quarter organic feels like it could be down 2% to 3%, which is similar to our fourth quarter organic. Despite some first quarter softness, I feel really good about our business and our competitive positioning. Labor markets and the economy should recover as we move through 2021. And as they do, I am confident our more than 4,500 global colleagues will be ready to provide advice and solutions to our clients' human capital challenges. Needless to say, I am very excited about our future. Okay. 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, Bill, and good morning to everyone. As Bill said, my name is Scott Hudson, and I lead our third-party claims administration business, Gallagher Bassett. For those of you who are familiar with our financial reporting, it's shown in our financial statements as the risk management segment. This morning, I'll provide you an overview of our business, give some comments on what we're seeing in the first quarter of 2021 and then finish with some thoughts on the rest of 2021. Gallagher Bassett, or GB for short, was formed in 1962 by the Gallagher Bros and Sterling Bassett. And today, we're one of the world's largest P&C third-party claims administrator. In 2020, we generated over $800 million of revenue, of which, about 84% was domestic, 16% international. The international business is mostly in Australia, but we also have a strong presence in the U.K. and Canada. We've got about 5,600 employees, almost all of whom are working from home at the moment, although many of those work from home prior to COVID. We don't take underwriting risk but rather adjust claims for our clients. In 2020, we closed about 900,000 claims and paid out nearly $10 billion on behalf of our clients. This would make us the eighth largest P&C insurance company in the U.S. if we were measured by total claims paid. 60% of our revenue is from workers' compensation, another 30% from liability with less -- or the remainder of that, which is less than 10% from property, and very little of that is storm chasing. We do also have specialty offerings in lines like medical malpractice, products liability, environmental, professional liability and cyber. So we have a well-rounded set of products, including services in the areas of environmental health and safety, building services, forensic engineering and construction, which really line up very nicely with our clients' exposures. We serve 4 distinct client segments. The first is our largest and it's commercial clients who self-insure or have large deductible programs and then outsource the claims resolution process to us. Think of Fortune 500 or Global 500 type businesses. Second are the public sector clients, which include local municipalities, school districts, state entities and even some federal governments. And as an example of that, we have a significant portion of our clients in Australia are the state-sponsored work comp schemes. The third segment, our alternative market or group captive clients. These are generally pooled entities that utilize us for their claims infrastructure. And then last is the insurance carriers, and this happens to be our fastest-growing segment at the moment. And it represents carriers that are both large and small and are interested in outsourcing some portion of their claims handling to GB. Clients choose us for many reasons, but we believe the biggest draw is our deep expertise and superior execution, which results in the best claims outcomes for them. But importantly, the best claim outcome doesn't always mean the lowest cost way to handle a claim, and that can vary by client. Insurance carriers and commercial entities typically want their claims handled a very specific way. So we are in a position to be able to customize our services to align with their expectations. Back to work sooner, brand protection, customer loyalty or lower cost, whatever that might be. That's how we provide the best outcome for our clients. Our revenue retention generally runs in the mid to upper 90s, so the business is highly recurring. New business generation tends to be a bit lumpier, varying from quarter-to-quarter because many of our prospects have large volumes. As a result, for the first 3 years -- for the 3 years prior to the pandemic, our quarterly organic bounce between 2% and 10%, but annually, we ended up running about 5%. We are running about that in the first quarter of 2020 before the pandemic, and then in the second quarter, organic was down almost 10%, as you may recall. It recovered somewhat to down just 10% in the third quarter and moved modestly positive in the fourth quarter. I'll have more to say about 2021 or a quarter -- excuse me, 2021 quarterly organic growth. But needless to say, it is looking significantly better than full year 2020, which came in at minus 2.7%. M&A is also a growth driver at Gallagher Bassett, but not anywhere near to the extent it is for the brokerage business. Our industry is already highly consolidated and few larger customers are -- and very few of the larger customers are using local PPAs. We have plenty of scale in our core products, services and geographies. So our strategy is to 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. Ultimately, an acquisition should help us deliver better claim results for our clients. We have a really nice pipeline of opportunities both in the U.S. and internationally, and I think we're likely to see some activity here in the first half of 2021. We believe our margins to be industry-leading and over the last several pre-pandemic years, margins have been in the 17% to 17.5% range. We improved on that level in 2020, delivering adjusted EBITDAC margin in excess of 18%. And even with industry-leading margins, we continue to make substantial investments in order to improve our products, platform and service levels in order for us to continue to deliver industry-leading outcomes for our clients. And these investments are showing up in external recognitions as well. Some recent awards include the U.S. Captive Review PPA of the Year, Insurance Business Australia recognizing us as the best service provider, Insurance CI Outlook -- CIO Outlook acknowledged us as the top claims processing and management company in 2020 and Business Insurance awarded us their Insurtech Initiative of the Year in 2020 as well. We're extremely proud of these recognitions, which highlights our commitment to innovation and customer service. Moving on to our 2020 performance. In April of last year, we saw the potential for revenue pressure resulting from the pandemic. So we adjusted our financial objectives, taking ourselves -- tasking ourselves to deliver full year 2020 adjusted EBITDAC similar to that, that we saw in '19. The team immediately implemented expense controls such as reducing nonclient spending, altering our procurement strategy, carefully rebalancing claim loads across adjusters and further leveraging our offshore centers of excellence. And those quick and decisive efforts paid off. With our full year 2020 adjusted EBITDAC coming in nearly -- at nearly $150 million or $4 million better than 2019. And knowing that we delivered that result with 2020 organic revenue backwards, nearly $25 million which is just fantastic work by the team. Ultimately, the resiliency of our 2020 EBITDAC profits was the direct result of our cost containment efforts, which delivered around $30 million of savings in the final 3 quarters. As we think about 2021 and beyond, we do believe there are some expense learnings from operating in this environment. One example is while nearly 40% of our colleagues did work from home prior to COVID, we saw that number -- we see that number potentially doubling in the future. This, of course, will have a positive impact on future real estate and other building occupancy costs. And as I said in December, I think we'll see more permanent savings from travel. The pandemic has proven that we can provide clients with a similar level and, in many cases, a greater level of service in a virtual environment. Now it remains to be seen when we try to quantify what the long-term impact of these potential savings will be, but there's a couple of examples of where we see our future expense structure shifting. Let's shift gears now. Let me walk you through what we're seeing through the end of February. First, client retention remains at historic levels, and we haven't seen any significant permanent closing amongst our clients. Secondly, strong new business trends continue. We had an excellent new business year in 2020, and that momentum has continued in '21. I think the challenging PC insurance market conditions are presenting us new opportunities within the captive space for some special runoff-type transactions and are also causing insurance carriers to revisit outsourcing for some or all of their claim operation. Most of this new business won't incept until later this year, but it's certainly an encouraging sign. And third, as it relates to new claims arising, we are seeing an improvement in new claims arising relative to April of 2020, which were the low. However, the monthly trend remains below activity from Q1 of 2020, and is pretty consistent at the moment with the fourth quarter. So our outlook today is for a full year -- is for full year 2021 organic closer to pre-COVID levels or in the mid single-digit range. This could be a little uneven by quarter. For example, I see the first quarter organic pretty similar to 2020 fourth quarter. We'll call that flat as this is the last quarter of kind of a tougher pre-pandemic comparison. As we lap the tough comparisons further ahead in 2021, given the impact of government stimulus vaccine rollouts, improving employment trends and increased economic activity, all of which should help our clients get a little bit healthier, and we should see some sort of uptick in claim activity. That will ultimately drive a rebound in work comp activity as well as general liability and newer risings in both of those 2 product lines for us in the coming quarters. Longer term, I think we're really well positioned. Our new business sales are excellent, and the pipeline remains strong. Our offerings are resonating with more and more potential customers, client satisfaction and retention are at historic levels, and we continue to make investments to enhance our products and services. And at the same time, we are broadening and deepening our expertise in numerous specialty lines of business across our entire set of geographies. Bottom line, I'm extremely pleased with the fundamentals of our business and how the team is executing. And with that, I'll now turn it over to Doug Howell, our CFO.

Thanks, Scott. Hello, everyone. Thanks for joining the call today, and Happy St. Patrick's Day. I'm hoping that you're finding it informative today and leaves you with a better understanding of our businesses and our strategic priorities. Today, I have 4 topics. First, I'll recap what you heard from the others about first quarter and the remainder of 2021. Next, I'll highlight some items from the CFO commentary document we posted on the website. Third, I'll do a short clean energy vignette, again using the CFO commentary document. And I'll wrap up with some comments about capital, including cash, debt and overall liquidity. Okay, let's do the recap. Mike and Tom conveyed that our global property and casualty business continues to show really strong fundamentals. New business is excellent, retention remains strong and midterm policy adjustments remain a net positive and are pretty similar to pre-COVID levels. Rate is also trending similar to the fourth quarter, which is translating into positive renewal premium changes. So it feels like our global P&C first quarter organic will come in somewhere around 5%, which is similar to the fourth quarter. Joel then spoke about our domestic wholesale business. He's seeing positive results too. Breaking that down, we're seeing really great organic results in our open brokerage wholesale operations, call it, mid-teens organic. Rates are in the double digits for most lines and economic activity is trending favorably. On the other hand, our binding and program businesses, while organic is modestly positive with rate increases in the low single digits, new business startups have yet to rebound to more normal pre-COVID levels. So together, Joel's 2 wholesale units should combine to be up mid-single digits in the first quarter, call that about 5% to 6%, too. Then Bill covered our employee benefits and HR consulting business, told you that our traditional health and welfare brokerage, that's medical, dental, vision and voluntary coverages, are getting better. But remember, last year first quarter unemployment averaged less than 4% and it's now running over 6%. So getting better from the depths of the pandemic, but still down year-over-year. Starting to see some green shoots in HR consulting and other special project work, but not to the pre-pandemic levels yet. So all told, it's looking like our benefits division will post something like minus 2% to 3% in the first quarter. So when I sum it up, it feels like our global brokerage segment will be around 4% plus organic growth for the first quarter, which is a bit better than what we said 6 weeks ago during our earnings conference call. Moving to risk management. Scott just told you that first quarter organic should be flattish, similar to fourth quarter. And again, like benefits, it has a tough compare to pre pandemic first quarter 2020. COVID claims are not of their heights, but we did have a great new business year in 2020. Combine that with stimulus and accelerating vaccine rollout gives us optimism that we will be back to pre-pandemic growth levels in another quarter or so. As for first quarter EBITDAC, it's looking like quarterly expense savings from our cost containment playbook will continue to be around $65 million relative to last year's first quarter, adjusted for the pro forma effect for roll-in mergers. Call it $60 million of savings in brokerage and $5 million in risk management. That's similar to the level of savings the team delivered in the second, third and fourth quarters of 2020. That brings the full year operating in a pandemic savings to about $275 million, that's over the last 12 months. That's absolutely fantastic execution by the team. That should translate here in the first quarter 2021 to another quarter of substantial adjusted margin improvement. Brokerage segment expand -- should expand again by over 400 basis points and that would have been even greater. But remember, our first quarter seasonality is our strongest margin quarter, so the roll-in impact of acquisitions that don't have that same seasonality softens that a bit, call it 30 to 50 basis points. As for risk management, adjusted margin should be over 18%. That too is even above our pre pandemic margins. So leaving the first quarter 2021, some comments about full year. You heard Pat and the others say that we see mostly tailwinds for the balance of the year. Economy is recovering, vaccine is rolling out, substantial consumer and business have pent-up demand, stimulus, increasing P&C rates, better employment, a strong M&A pipeline, so on and so forth. Absent another virus strain that causes another lockdown, it looks like tailwinds most everywhere. So that bodes well for both organic growth and EBITDAC, both should be higher than the same quarters last year. Kind of the one big unknown still in the horizon for us is just how much we will hold of our expense savings. As we sit today, I believe we have a really good shot at holding a lot of it. I feel good about our efforts to downsize our real estate footprint, further utilize our offshore centers of excellence, in-source various service that we were previously outsourcing to third parties and worked virtually better than before. Perhaps the biggest remaining guess is the degree and extent our clients and prospects will expect to see us face-to-face. While we can control that to a certain extent, if they want to see us in person, they'll get us in person. But if they're more comfortable working virtually, then we'll see them virtually. That said, I don't see a dramatic reset all at once. So time will tell on that one. Margin expansion is also dependent on our level of organic growth. So let me say it this way. For full year 2021, if we grow or organically grow around 4% for the full year, we should be able to match 2020's full year adjusted margin. That's for our brokerage segment. If we grow over 4%, we might have a decent shot at a slight adjusted margin expansion. Then perhaps, of course, if we get over 5% organic growth, it might get a little easier. But on the other hand, if the world goes exactly back to the way it was pre pandemic, that will get a lot harder to do. As for risk management, if full year '21 organic gets us back to that pre-pandemic mid-single-digit level, we should be able to better 2020 adjusted EBITDAC margins, landing somewhere in that 18.5% range. Regardless on exactly where we land, let's keep this in perspective for the longer-term story. The pandemic has allowed and perhaps even forced us to accelerate a lot of improvements we had on the drawing board. It also served as an opportunity to design new and better ways to run our business. Both of these make us more productive today than we were 15 months ago, and our service quality has even improved during this time. This will provide a lasting benefit for years to come. So let's move to the CFO commentary document, and go to Page 3. You'll see there's not much change in most of the numbers from what we provided at the end of January in our earnings call other than now, the FX impact reflects the dollar weakening just a bit more. Both segments get a revenue lift, with brokerage getting a couple of pennies of lift, but there's not really much of an EPS lift in risk management. Moving to Page 4 to the corporate segment outlook. First quarter interest M&A and corporate lines. All 3 are in line or close to what we published in January. As for clean energy, we've now received updated production estimates from our utility partners, and we also moved a plant into a higher production location. So we've updated our quarterly estimates. You'll see that in the reddish column on Page 4. This is versus what we provided to you at the end of January. While our full year estimates are now a bit better given a colder January and February, which also helps our first quarter, most of what you're seeing now is just quarterly timing. Moving to Page 6, to the rollover revenue table. With only 2 weeks left in the quarter, this should be very close. So please take a look at your rollover assumptions as you fine-tune your revenue estimates. So this brings me to my third point, my vignette on clean energy. I spent a lot of time on this during our January earnings conference call. So here are the punchlines. The last 10 years or more have been the tax generation era where we report GAAP earnings in our P&L. We now have a $1 billion tax credit asset in our balance sheet. Starting in '22, that deferred asset starts to convert to cash. Call it the cash harvesting era. When that asset converts to cash, it doesn't show up in our P&L, but rather in our cash flow statement, and that will show up over, let's say, a 5- to 7-year period. In other words, in 2022, GAAP earnings will go to 0, but GAAP cash flows should go up by much, much more, which is a good trade, in my opinion. Here's how you can see that. First, flip back to Page 4 of the CFO commentary document. Four lines up from the bottom. The line called clean energy related. You'll see we reported after-tax adjusted GAAP earnings of $97 million in 2019, about $70 million in '20. And now we're forecasting $65 million to $75 million of GAAP after-tax earnings here in 2021. Now turn to Page 5. You're going to see those same numbers in that table, just gives you a little more detail. But we've added a peach column to the right that shows what we think will happen in 2022. You'll see that nearly all of the GAAP earnings go away, but under that peach column, we've added our first estimate range of how much the aftertax cash those investments might generate in 2022. You can see the 2022 cash flow should far exceed the GAAP earnings we've reported in the past. I realize this adds some complexity, but it gives you some early thinking on how this might all come together. And I do realize that this is a repeat of what I said in our January earnings call. But I think it's worth spending a couple of minutes today, and I'll also do it whenever we're together again this year. This is and has been a really important part of our story over the last decade. So better to have frequent reminders, so there's no surprises as we get to 2022. Let me end my comments with some thoughts on liquidity and GAAP. At the end of February, we had about $400 million of available cash on hand plus we have more than $1 billion of available capacity in our revolving credit facility. Also, I'm sure you've seen that we now have 3 solid investment-grade ratings. Moody's and Fitch announced this week and S&P announced last June. As I said in our June IR day, for the last 14 years, we have efficiently used the private placement market to fund our M&A program. Generally, we're doing a raise once or sometimes twice a year. Having public ratings provides us the opportunity to now also access the public market. Clearly, it's another and larger pool of debt investors. The timing of these announcements and getting Gallagher in front of public debt investors is a natural evolution of our capital management process that we started about a year ago, and it's also a nice affirmation of our strong financial position. So to wrap up from my vantage point as CFO, it's looking like a solid first quarter and some nice tailwinds, perhaps for the rest of 2021. More importantly, the team is really energized as we emerge from the pandemic stronger than ever before. So back to you, Pat, so we can open it for questions.

Let's do that. Questions and answers, please.

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

My first question is on the organic, I guess, organic and margin side of things. So I take the comment from throughout the presentation, you guys pointed to around 4% brokerage organic in the Q1. And then it seems to insinuate that all of the segments would get better during the other 3 quarters of the year. And so as I combine that, I just want to make sure I'm parsing that together correctly. And if that is the case, I guess the assumption would be that we would see some margin improvement within your brokerage business, given that you'd be above 4% for the full year.

Well, let's make sure we clarify. I think it's going to be 4-plus percent in the first quarter, and we think we have tailwinds coming for the rest of the year. So is it going to reach 5%? Elyse, I don't know. We'll have to see how this economy recovers, right? And the real place that we'll see that is, how does our benefit business recover. And I said, if we get over -- if we get 4%, we have a decent chance of holding margins. If we get over 4%, we might have a little chance to improve it. That's just the way the math works. We'll have to see what our clients want us to do, what's happening with our teams, where we want to make additional investments. But right now, as we entered into the year, the big challenge was how much of last year could you hold? Well, we're feeling more and more confident that we can hold a lot of that in this environment. So I think that's the story here. How much more margin? If we get a little over 4%, I think the story here is holding last year more than it is improving this year.

Okay. That's helpful. And then I had one question on the free cash flow side. You guys ended up with pretty strong free cash flow. I think it was about $1.65 billion last year. I think you gave guidance on your last conference call that was a little bit lower than that. Was there something one-off in your cash in 2020 that wouldn't recur? Or should we expect -- I know you sometimes don't look at it from free cash flow because you talk about the cash on hand. But should we expect free cash flow to grow in 2021 relative to 2020 as your EBITDA goes up?

Yes. Let me answer that backwards. Yes. I would think that we'd have better cash flow this year than we did last year. And then I would also caution, it's very difficult use a broker's GAAP cash flow statement because of the change in client monies that come through our veins. So again, we think that a better indicator is just track EBITDA and there's a relationship. We tend to pay about -- we tended to use CapEx someplace in the 7% to 8% range of that number, something like that. And we tend to pay cash taxes paid. That might be a similar number on that. And those are kind of the 2 big differences from EBITDA, and then you've got interest and dividends, et cetera. So I would start with the EBITDA. And if you believe EBITDA is going to trend up, then it would stand to reason that cash flow would trend up also.

And then on the M&A side during Pat Gallagher -- during Tom Gallagher, sorry, comments, he was mentioning that you guys could pursue some international M&A outside of, I guess, the U.K., Canada, Australia and New Zealand. Can you guys expand upon that and the asserted geographies that you're targeting to make, I guess, for Gallagher to have a bigger presence in based on those comments?

Sure. Sure. I mean we've got good activity going across the globe. We're very comfortable taking positions with partners. We're the largest -- we're a part owner of the largest broker, as you know, Latin America is a very strong target of ours. We expanded our relationship with our Mexican partners, the largest independent. We've got good small roll-in acquisition opportunities on the PC side and reinsurance side in Latin America. We've got a very good -- very nice platform and growing in India, which we see and our partners with, again, minority partners with the largest independent in Eastern Europe, and see good opportunities in Europe. As you know, we're presently already in Europe on a very small basis, primarily marine and what have you, both in Switzerland and in the Scandinavian countries. But again, it follows a pattern that we've, I think, successfully proven we can use which is to find partners that we trade with through our Gallagher Global Alliance, who have, for whatever reason, an interest in both branding as with Gallagher and expanding globally with our network and platform, letting us take positions to start and ultimately going to majority position in those. It's not something that's earth shattering in size, but it's very nice as an extension of our platform, lots of opportunities there.

That's great. And then one last one for me. I appreciate the new color on the cash from the clean energy investment, the cash tax impact expected in 2022 and beyond. Doug, if there is tax reform that's impacted within the U.S., would that cause those numbers to change?

Well, listen, depending on how that tax reform happens, the advantage of clean energy and other R&D -- or their credits, they're not deductions. So if the tax rate goes up and creates more taxable income or taxable amounts that are due to the U.S. -- to the IRS, then we would use more credit. So it is a natural shock absorber. You remember when tax reform came in, in '17, the impact to us on our cash taxes paid wasn't as great as, let's say, a Brown, who's primarily a domestic broker. So the increase in tax rates won't have as big an impact to us because we have these tax credits. On the -- when rates come down, we use less tax credits as rates go up, we'll use more credit. So it's a nice shock absorber against that. And it's a nice affirmation of what we've done is really providing a terrific benefit to America at this point.

Our next question is coming from Mike Zaremski with Credit Suisse.

Great. Maybe I'll -- first question will be a follow-up to Elyse's. Beyond 2022, Doug, thanks for the new disclosure on the clean coal cash flow. So beyond 2022, what should we be thinking about in terms of modeling the trajectory? Is it mostly -- I'm thinking about the U.S. earnings growth level? Or are there other things we should think about?

Yes. I think it's the interplay of earnings growth. And then if you think there are any other deductions that get disallowed, that would cause us to use more credits. And if there are more deductions allowed, it would slow that down a little bit. So that would be -- it's basically would track with what we think would be the growth in our U.S. taxable income.

Okay. Great. Maybe switching gears. To the claims side with Scott. Scott, maybe I missed them in the commentary. Just curious if you can give us any stats on trends for claims levels you're seeing in the business, maybe in workers' comp or GL or both?

Okay. Mike, so I'll put it into a couple of buckets here. We're relative to let's -- finishing off the fourth quarter of last year. The first quarter is about the same. Obviously, in comparison to the prior year, that's down over the first quarter in 2020, simply because that was pre pandemic. We are starting to see some evidence of a little bit of growth, but nothing that's noticeable or that is giving us tremendous confidence. But if the indicators, as we look at things like employment getting stronger and other things happening within the economy, we'd expect those to go up. A couple of other comments. If we look outside the U.S., the U.K., they're still largely in lockdown. So that has not recovered probably even quite to the extent that things have here in the U.S. And then if you look down in our Australia business in New Zealand, they're probably a bit stronger than we see things here in the U.S. simply because they just didn't experience the pandemic to the extent that we have here. And across the different lines, work comp, absent the COVID-related claims, it's probably the one that has been most challenged. And then the GL and some of the other liability lines are slightly better, but not a whole lot stronger yet at the moment.

That's helpful. And one follow-up, Scott, I'm curious there's been increasing kind of news reports about "long COVID" about kind of cases of COVID that are persisting for months and maybe for some, a year. Is -- are you seeing any of that in a meaningful way in your clients' portfolios?

I would say nothing that is noticeable. The majority of the COVID claims that we've seen tend to be very short in duration, a couple of months. A number within our health care clients, a number within our public entity clients who have kind of first responder-type personnel. And I would say, on average, they look more like a medical-only claim in large part than they do even a traditional indemnity claim. There may be a little bit of lost time, but not a whole lot. So nothing to speak of in terms of any sort of long tail COVID-related claims.

And a final question on the benefit side, maybe for Bill. The update on organic for this quarter, looks like it's going to be similar to 4Q. In other parts of the -- from the commentary, it seemed like there was some confidence about exposures and GDP improving. Just curious if you're if your piece of the business, if there's some nuances that you're kind of not seeing it -- maybe it's just seasonality in terms of 4Q being stronger, which might have been on the, I think, is a pervasive on the on the brokerage side. Just curious if you're seeing a little bit different trends than the rest of the business.

Mike, this is Doug. Pat and I'll take this. I wish I would have gotten to you first. Bill literally just had to drop off for a client commitment. So we'll take our best shot at this one for you. But the answer to this is right now, I think that our clients being stable to where they are in the fourth quarter on their renewals for 1/1 is actually a positive sign. We're not seeing further deterioration in covered lives. And as Bill said, we're fortunate in that practice that we don't have a lot of exposure to, what I would call, high unemployment industries that have. Now as companies put more cover -- rehire this year, and I believe that will happen. Then what will happen is, as those covered lives will be added, and we'll get subsequent audit revenue lifts on that. Because we basically get paid based on covered lives in most of our medical, dental, vision-type plans, voluntary plans. So if we get an uptick in employment, and it goes from the 6% and change, it is now back down to the 4% or 3% and change where it was before, then you would expect to see those additional covered lives coming in online. The next piece of it is the consulting practice. And that is where we're giving advice. I believe that war for talent is still there. Hiring skilled positions, still tough. I think that HR executives are going to need the capabilities that we have to help them as this -- as we get back into this war for talent. As companies hire, we've got to come up with more competitive ways to -- they've got to come up with competitive ways to attract talent. And third, if there is a further change in any type of governmental regulation related to benefit plans, that drives a lot of consulting also. So those 3 dynamics would bode for a better half of the year. And again, this is the first quarter -- last year, first quarter this time, there were still a lot of covered lives. Unemployment really didn't spike until May or June, I don't believe, on that. Pat, do you want to add anything on it?

Yes. I second what Doug said. I think when employment comes back to something more like it was in the past, the pain of your benefits cost goes up. You do everything you can on benefits and what have you in a decline, in a recession like '08 and '09 and then the pandemic. You're taking benefit programs away. You are not hiring consultants on communication. You're not hiring consultants on governmental regulation. Now as you start to rehire, you can -- all those things start to bloom again. And so no surprise, we're -- you know any consulting businesses out there, most of them were down substantially last year. I think ours held up pretty well. But I do think that we'll see a nice return to that as people throw out their employment base.

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

I guess, the first question will be around just the decision-making process for internal investments. You guys killed it last year, especially related to your peer group for margin expansion. And so naturally, we've heard some criticism about the decision-making process for you guys as it relates to investment in technology upgrades. So can you just give us some perspective of how you approach that process? Clearly, you're making them. You talked about them in various parts of the presentation. But as we sit on the outside, we hear sometimes conflicting messages. It's hard for us to sort of see the forest through the trees, if you understand what I'm getting at.

All right. I'll take it and then Pat can add -- if you want to add some flavor on that. I don't know what you're hearing, Greg, but I know what I see here. And I do see that our technology budget in 2020 is not less than -- what we spent in '20 is not less than what we spent in 2019. So we didn't -- that's not an area that had a lot of financial compression in it in order to hit expense rates. When I look at our budget for '21, it's actually -- the technology spend is actually up and that comes in 2 pieces. It comes in what hits our operating expense, which is somewhere around the $225 million a year. And then our CapEx line. We have -- we spent a lot of money on internally developed software and buying systems, et cetera. And that budget is somewhere around $100 million to $125 million this year. We're also working -- spending an extra $30 million this year on hardening our environment just as to work virtually better. So I think that the technology spend is not the place where we have had ration, and we think there's big value to shareholders by continue to -- continuing to do that. So...

Well, and also, Doug, a big part of that spend is on data to analytics, right? I mean, we've got -- we're spending huge amounts of money on data analytics. SmartMarket, you can talk to most of our carriers, is probably now the preeminent form of data sharing between carriers by the PC side and our operating businesses. We're investing in that every single month. Data and analytics, we've probably now got over 120 robotic projects going in the business. Joel commented on our click buying and issue. We're now up to 25 products. Quite frankly, when we [indiscernible] it looked like a pipe. We got to get half their market cap just for having RPS. So if you take a look at what we're investing, I would tell you that anybody who says that isn't following Gallagher very well.

I loved your comment, Pat. But listen, I'm just a reflection of what we hear from the marketplace. And so...

I got it, I get it.

And the SmartMarket thing, it's -- it wasn't lost upon me that Joel mentioned that you're branching out into RPS. I know in the past, you've given us like number of carriers. Can you spend a minute and give us a little more detail on what's going on at SmartMarket? Is this a separate profit center? What's the organic revenue growth of this business look like, things like that, that we can sort of think about?

Well, first of all, let's take it for -- it was a brand new start-up 5, 6 years ago, it was a concept. And it's a proven concept now. Prior to the very hardening of the market, our SmartMarket clients and that's the insurance carriers, had substantially greater growth than those that didn't participate in the platform, which makes a lot of sense because they can tag our renewal book without name associated, but with the [ Tycho ] accounts, SIC code, et cetera, and that we're under no obligation to show that account to them, but if our producers and clients are deciding that they want to market it, it's nice to know that a carrier would like to see that account, who we might have not ever thought was even interested. And that is -- and also across geographies. One of the biggest problems we've faced over the years is sitting with the chubbs, the harpers, the travelers and saying, why do we trade so well in these 15 to 20 locations when we've got 70 other locations, and we just don't seem to get traction? And a part of that is the human nature, the natural power of human nature that you trade with people you know. Well, it's hard to break into a branch office. And if you're a merger partner and you never really traded formal securities, not only your muscle memory isn't there. But let me tag something and say, hey, Mr. Merger partner, you've got this account, and that really is something we'd like. Well, when do you know, the doors oftentimes open up and that account moves. And that's not denigrating the existing carrier. This is our job. We take a look at the market for our clients. And so now you've got a business that's generating over $20 million of revenue for the company. From a dead start, it is -- it's really not -- we don't consider it a profit center, but it does certainly have a very high margin. And what it's doing for us is it's really increasing the value that we play with those carriers and it is, of course, generating profit, but most importantly, it's generating income for us to do other things like expand it. SmartMarket will be in Canada, will be in Australia, will be in the U.K. before you know it. RPS is using it with their carriers. I think it will be -- and one of the nice things about it is, we are not giving it to every carrier that puts their hand up. You don't just get to walk in and say I'll take SmartMarket, too. No, these are people we trade with and we want to build a trade relationship with. So it's not -- it's more of an exclusive group than it is just a market-wide application. And by the way, that's one example. As I said, we've got 100-plus robotic projects. One of the beauties of our centers of excellence in India is, as you know, before you can robotize something, you have to standardize it. Well, we didn't have any standard procedures in the company 10 years ago, literally zip. I give Doug a lot of credit for bringing that whole concept to the company because we didn't believe in it. Well we centralized, standardized, lifted and shifted things to India, and guess what? How we do certificates now is done the same way everywhere we use our center of excellence. So now you can robotize it. And we have a legitimate certificate, you need about 14, you need to know about 14 fields. The robot can do probably 10 to 12 of those, you get a person checking instead of having to do the work to start-up. And you can take the efficiency, as you can imagine to very -- not only the efficiency, but here's the beauty of it, the quality. So I can tell you we're going to issue 2 million, 3 million certificates this year, and we won't have an air ratio of 1%. So that's the kind of thing that happens. Now I think there's value in that. But I mean it's exciting stuff, and it goes to Doug's comments. Everybody kind of mentioned it today, the little guys just can't compete with us. They just can't. And so it -- overall, it just makes us stronger every month.

Right. That makes sense. So again, sticking on the theme of questions we get from people that are looking at your stock and considering investing in it. You've obviously, for several quarters now, have laid out a pretty positive outlook for the company, not only for your existing business book for growth. And so clients are listening to rhetoric, and then they're just trying to figure out what can go wrong at Arthur J. Gallagher? Is it producer retention? Is it errors and omissions? Is it disintermediation? But you -- very rarely, do you spend time talking about what can go wrong at Gallagher, but I'm sure your Board is focused on it, and I'm sure you're -- you've been focused on it. So maybe if you can give us a little peek into the window of the things that you think about that might go wrong for the company would be helpful.

Well, sure. In fact, we tell you that publicly. We spend a lot of time on our risk factors for the 10-K, tell them to open it up and read it. I mean to me, we really do spend time looking. We have a very strong risk management process, a heat map that says what could go wrong. And the things you mentioned are on there. We're watching every day. We have over 1,200 insurtech companies that we have a team, led by a very capable guy, Jonathan Hendrickson, that does nothing but watch. And in fact, we don't have an investment fund to try to run out and invest in insurtech, but there are some very good ideas out there. And we are bringing them aboard as both will-be customers as well as potential investors. In some instances, receive equity or take warrants in those. So yes, we're looking at -- could we be disintermediated? We don't think so, but we're watching that very, very carefully. Certainly, cyber, which has stung us once, has not gone away. And those things -- and we are investing a huge amount of money and tightening the environment. But the side of criminal skills [indiscernible] hell out of me. The economy -- I'd tell you what, Greg, this business is so resilient, I can't see how you invest in anything else. Go to 2008, 2009, look what we did. If you'd have told me that this week last year, I had to send 33,000 people home and the business would grow, I'd tell you, you're nuts. And not only did it grow, our culture got stronger. Our new business was outstanding, and our retention went up. So you look at it and go, wow, what a business. But we lay those risk factors out, and we're watching them every month. There's stuff. Listen, this -- you don't run -- I love Doug's line years ago. You don't run the business on a spreadsheet. It's easy to put your business on a spreadsheet and plug-in growth numbers. It's a lot tougher to make them happen.

Got it. I guess the final question from another investor would be, obviously, the merger going on in the industry is consuming a lot of oxygen. And assuming that does come to its natural conclusion, do you see Arthur J. Gallagher as the #3 competitor on a global basis for broking, brokerage? Obviously, that would, I guess, assume that you expand your footprint in other areas of the world other than just in the U.S.?

Absolutely, great. Look, I'd love to say that we got to #4, potentially #3 by being very smart, strategically oriented people. In many respects, we've been lucky. The acquisitions over the last 30 years have cleared the decks for us. We continue to stick to our knitting, and we've grown. And so here we find ourselves coming up #3. And for a guy like me that went to rooms 30 years ago, that nobody came to our booth, being #3 has some -- really satisfying. And four is fine. Look, if the deal doesn't go through, we'll all do fine. Those are good friends. We've got great respect for both roles [indiscernible] and they'll trade on. If it goes through, which I do believe it will, then the opportunities for us are just myriad. There's no question that the risk management community doesn't want 2 choices, and we've been playing in the risk management business. That's what put us in business, Beatrice Foods, a Fortune 100 company. So we know that business. We do very well at it. And for us to pick up a greater market share there, we won't change our focus away from the corporate middle market. But gosh, to be really considered that person that can take this on, I think it's going to be outstanding, and it will open up other growth aspects from a global footprint perspective. So I'm very hopeful. And look, I'll be honest, it also is going to open up recruiting opportunities. There's going to be a conflict between the 2 companies coming together, and we will benefit from that. And as we have in all of this consolidation over the last 30 years, I'm not talking massive teams or anything like that. But this is a people business, and we offer a pretty nice place to work. So we are, in fact, very excited about the acquisition. I just hope it completes.

Got it. I also find your comments and remember your comments about Beatrice Foods. There's a carrier in Chicago that speaks famously about their involvement in that Beatrice Foods risk management comp.

Yes, it's older, probably. They certainly helped us.

You got it. I think the 2 of you guys sort of set up the whole risk management business as it stands today, so.

I think that's right.

[Operator Instructions] Our next question comes from David Motemaden of Evercore.

I guess I wanted to just talk a little bit about the $125 million to $150 million of sustainable expense saves, Doug, that you've sort of pointed to in the past. And I guess, I was wondering if you can maybe remind me of the components of that and maybe as you sit here today, how you're thinking about maybe getting towards the top end or even above the top end of that based on unevenness and reopenings and across the world. I guess I'm just wondering, from your vantage point, how you're feeling about those sustainable expense saves? And if we could have a sort of a period of time where you save more than that as we're sort of getting into a reopening spot?

Yes. Okay. Great question. I think then, first, let's talk about real estate. We're spending $175 million to $180 million here on real estate. I think over the next 3 years, we can probably have that. So just on the real estate footprint alone, I think there's opportunities there to be -- maybe that's closer to 3 to 5 years, going to have that. I think that putting our experts at the point of sale, right now, it's traditionally been done through a lot of face-to-face work. I think virtually, that will save us probably $30 million to $40 million a year in travel. I think that we can drop our experts right in at the point of sale. And that's a real competitive advantage. When you look at 90% of the time, we're competing with somebody that's substantially smaller than us. They just don't have that niche expertise that we do, right? And typically, they would have to lean on the carriers to bring an expert into that discussion. To me, that's -- that you want your independent broker experts to tell you where the right place to go. So getting our experts on that. I think that in, in-sourcing more of our work, there's probably $10 million to $20 million worth of savings there on that. I think that would be shifting from a consulting or outsourced model to an in-source model on that. Just the nature of running our offices. I think you could price in $20 million of that on consumables, postage, inbound, outbound postage. And then you also get a distributed workforce, being able to further lever our offshore centers of excellence. I think there's substantial opportunities there that could deliver another $30 million or $40 million a year. So when you add all that up, I don't know if that gets to the $175 million, but it certainly gives us a line of sight to that number. So does that help?

Yes, that does help. Maybe you could just help me with the T&E, you said it was $30 million to $40 million of saves. I guess what is the total spend that you guys have on T&E, just to sort of level set a starting point for that?

Well, we're spending over $100 million a year on T&E in one way, shape or form. So if we cut out 25% to 30% of it, or more that's not -- it's not going to absolutely shutter everything we're going to do there. We still have a good budget for that.

Right, that makes sense. Okay. That's helpful. And then maybe, just maybe thinking a bit more. It sounds like retention levels are pretty solid across the company. I guess I'm just wondering maybe if you could talk about retention levels and geographies that have opened up a bit more and how those are -- are those materially different versus geographies that are more restrictive? And I guess, how do you see that revolving as the economy opens up? I would think, presumably retention may be a bit lower as the economy opens up, just because more business could be in play. But then, obviously, there's a benefit on the new business side as well. So maybe you can just walk me through how you guys are thinking about that.

Well, maybe I'll -- Pat, maybe I'll let you talk about that the -- what will happen when a customer realizes what their smaller broker can do. But from my standpoint, from a number standpoint, when rates go up, consumers have a propensity to shop more. It doesn't matter what the product is, if they have rate increases, they want to go out and get another bid.

No, that's a very good point. Let me also place this. You have every single buyer in the world pissed off right now, every one. They don't like it. They don't like rates. They don't understand it. You can talk about the storms in Houston. You can talk about earthquakes, the fires in the West Coast, guess what? You just told me at the end of a deep recession where I'm coming out of a pandemic, that what I spent $100 million for, I'm spending $124 million next year. I'm not happy. So to your point, you raised a good question. What's going to happen as this opens up, as those people are going to take quotes? Now our job is to fight that off. And we're very, very good at it. But it's going to put us in a more defensive mode on our renewable. But it also gives us -- you mentioned the opportunity to write other people's business. And with that's going to come in a form that says, wait a minute, did your existing broker suggest this during a difficult time? Did you look at a group captive? Did anybody suggest you take a self-insured retention and bring Gallagher Bassett in? So interestingly enough, the 2 of them will offset each other. And I think our retention will be better because we did do those things. So when the local broker comes in and says, well, they didn't go to Hartford, I'd get you a Hartford quote. Yes, okay. But I think when we say, look, we talked about group captives, you didn't want to do it. We took you through taking your limits down, taking the retentions up, we did a balance there and helped you mitigate this. Our retention will stay very stable, although those clients will want a lot of attention to know that where they got to is the best place, and our new business will outweigh the others. And the little guy, once again, is going to get squeezed because he's got no answers in that regard. Sorry, Doug, to interrupt. Go ahead.

No, no, I think that's it. I think that's exactly right. I think that -- just go back to Greg's question on SmartMarket, too, is that now that we're matching up appetite with supply with demand, I think that will give existing customers the opportunity to make sure they're with the right market. And prospects, we'll get them in front of those markets that may be the other broker didn't realize had an appetite for that risk. So we give them choice. So between restructuring their program, matching up through SmartMarket, the supply with the demand, and just bringing out the capabilities. If human rates are going down, it's pretty easy to just open up your mail and not shop. Now with rates are going up, and then the other thing, because it just puts us in front of a customer that says, this is all -- you get so much more with Gallagher than just the price that you're paying for your insurance. So I think this market right now, for those with greater capabilities and those with more -- greater ability to match supply with demand, I think it bodes well for more wins coming out of this. It's just -- it's a good market right now, I think, for us to show our wares.

Yes. And it allows us to say, if you had been with us, we would have. And as you go back to Mike's comments earlier, CORE360 is about talking with your client about things that aren't just insurance. And the local guy, gals, has got nothing to talk about, but insurance, rates, coverage. That's it. We say that's all very important, that's table stakes, no doubt. But mitigating that cost by all these other elements, loss control, what should be assumed, what's not insurable? What are you doing about that? I'm a more valuable partner than just the person who walks in and brings you insurance plays. So that adds up. And then as the market softens -- yes, go ahead, Mike.

I was just going to add to that, just a common real-life experience, actually, just about a month ago, we had a really large risk in the Southeast. And tough renewal, tough property risk. And while we were doing the virtual presentation, there were serious concerns about the quotation and what we had gone out to the market to go get. The increase was just about 20%. And while we are on the presentation, we shared our screen of Gallagher drive, showing their peer group analysis of all the other risks just like them that we ensure and the average rate was north of 20% that others like them were incurring. And so all of a sudden, the waters has got a lot more calm. It's all about perspective in a hard or hardening market. And when you can use and leverage data, that we now have in our possession, to coach a client through, hey, I understand this is not an easy pill to swallow, but look at your peer group, look at the risk that you have and then compare that to the marketplace, it goes a long way towards, again, calming those waters, making sure that those clients truly understand. And then the reverse of that's true on new business. When we can go in and show a prospective customer exactly what others like them in our own portfolio are seeing. And we pull in our own data and then we pull in outside data and our competitor data that we have available to us, to show them where we're outperforming. It certainly helps from that retention standpoint in a hardening market.

Our next question is coming from Yaron Kinar of Goldman Sachs.

My first couple of questions are on clean coal. So Doug, I think in your past commentary on clean coal, you seem to hold up some hope that maybe the clean coal credits would be extended. I don't think I heard that this time. So is there a change in your thinking here?

No. Actually, we say it in the CFO commentary that, yes, there is movement afoot to see whether they can extend this for a couple of years. It does a good job for America's electrical generation. We'll see whether Congress sees its way clear to provide a little more financial encouragement to continue to make electrical generation better. So I didn't -- it wasn't an intentional oversight by any means. We think that -- I don't think it would happen right now. I think this might be something in an extenders bill or something would happen towards the end of the year. So these plants are doing their job out there. They're doing good things for America, so hopefully, Congress will see their way clear on that.

Got it. And then just a follow-up on that. I think there are a couple of news articles out there recently talking about, I guess, some congressional investigation of clean coal tax credits. Is there a risk if these investigations go -- come to a conclusion that, that clean coal is not as much of a positive, that ultimately, there could be a claw back to the balance sheet, to the credits on the balance sheet?

No, I don't think that's the -- I would say this is a normal inquiry into just any type of tax credit program Congress reviews from time to time. And any congressman or Senator can -- representative or senator can ask for that inquiry. I think what you might be referencing is something that I think the inquiry happened 20 months ago. And we view that as routine. It's fairly typical. I think that we're fairly comfortable that it would find or perhaps it's already found, that these processes and technologies are actually improving, what's happening out there with America's energy generation. So I think that this inquiry, I would view it as being normal. Do I think it has a chance to cause a nullification of past? I don't believe that's what this inquiry is about at all. It's a question about the process that's being used, but I don't think it has anything to do with what's been done in the past.

Got it. That's helpful and reassuring. And then my second question is more on capacity. So I think in the recent past, you talked about roughly $2 billion of capital available to you for M&A. Is that still the case?

Yes. I think that we're looking at somewhere, maybe pushing as much as $2.5 billion of M&A capacity this year, and we'd see that number repeat in the following years, too, as we continue to grow. So we do have a good-sized war chest for future acquisitions.

Got it. And would you stretch beyond that for the right opportunity? And I don't -- not that I'm not going to circle any specific target. But if the answer to that is yes, can you maybe talk through the thought process of what a right opportunity is?

Well, listen, I think that we really like our tuck-in strategy. There's no question about that, that we like those. Do we see ourselves as being -- we're an acquisitive company. So we'll take a look at anything that comes to the market, as long as it fits with what we're trying to do and has alignment with us. Do I see us broadening out into lines of business that we're not currently in? I don't think that's a big focus for us. We kind of like where we are on it. So would we stretch the capacity of it? Well, we've done that in the past, when Wesfarmers was going to sell Oamps and Crombie Lockwood. We did that in 2014, '15 in that area. We bought Neuraxis in Canada. We brought Oblin Giles in the U.K., all kind of coming together at once. So we would look at that. We'd be judicious about the amount of stock that we'd use in any transaction. We have now nice solid debt ratings from the 3 rating agencies. So I think we're well positioned not only from our existing cash flow, investment-grade rating. And if necessary, we would stretch and use a little stock in a deal. But right now, we like our [indiscernible].

Doug mentioned, Doug mentioned the tuck-in strategy. There's #100 in business insurance, last year's top brokers in the U.S. did like $27 million, $26 million of revenue. So when you look at what's available out there, it's mostly tuck-ins. And our pipeline, and most of those are run by baby boomers. So we're well-known in that market. They know that we're a good home. Our best salespeople are the people who joined us through acquisition, and we'll talk to the other potential acquired companies as this is a great place to land your people. And a great place to work after the acquisition. So that's a great strategy for us. And literally, the pipeline, it just doesn't end. I mean, with that many out there that are smaller than $26 million. Now would we look at a top 100 broker, of course, we would. But we like this idea. Doug repeats this all the time. Look, we're marrying these one at a time. They're choosing us. We're choosing them. The PE roll-ups, well, they chose someone else. Those were people we were interested in, but they chose to go someplace else. And they think they're going to trade out at 18 to 20x, and maybe they will. But I think our tuck-in strategy, knowing the entrepreneurs, calling on them 1 at a time, it's gotten us to where we are.

Our next question is from Meyer Shields of KBW.

Just some very brief questions for Scott. First of all, you mentioned that you're not storm chasers. Does the Texas freeze count has that sort of storm? Or is the fact that it's like low cat losses, does that make any short-term opportunity for you?

Interestingly, there's a little bit of opportunity on our newly formed kind of technical services business and environmental health and safety. As it relates to the kind of traditional property, lot of it may be homeowners related. We just don't -- we're low property. And then combined with the fact that we don't chase storms even in our property business, there's not a huge opportunity there for us now.

Okay. That's helpful. Second, maybe bigger picture. When we think about longer duration or longer tail claims like work comp, not COVID work comp, but maybe the permits or whatever, or VL claims with, claims settlement is slower, when should we model the revenues associated with that coming back?

Well, I think -- I guess there's 2 pieces to it. One is, when the claim occurs. Now we don't recognize the entirety of the revenue at the point in time that the claim occurs. So first, if you think about -- take work comp as an example. So the business has got to reopen. The restaurant's got to open. The hotel's got to open, they've got to have active employment. Then people actually need to get injured in that particular case. So there's probably a little bit of a lag there. And then the revenue associated with that claim is going to occur in the essence, over the life of that claim. So there is, from where we sit, kind of dealing with injuries and accidents and so forth, it doesn't happen instantly the day the business opens up, and they've got a whole bunch of patrons there. But it's not a long time after either. And that's why I think as we were -- as I was describing, I think Pat even described it, that we would anticipate, as things start opening up a little bit more in earnest, particularly here in the U.S., that we'll see or we would anticipate now, we're expecting an uptick in activity in Q2, in Q3, in Q4. And then maybe a little bit further out to see, back to where our clients are operating kind of at full capacity, and we're seeing the sort of claim activity from them. But I would anticipate it will happen relatively quick if things continue to open up.

Our last question comes from Elyse Greenspan of Wells Fargo.

Just had a few follow-ups. Doug, the first one, you mentioned that there was -- Q1 is your strongest margin quarter, so some of the brokers that you've acquired, right, are -- have a negative impact on the Q1. Should we then expect a positive impact of other quarters of the year? I'm not sure when those deals might have been completed last year.

Yes, it's the seasonality. Our benefits business is so strong in the first quarter because that's the 1/1 renewals, and you also see that's our reinsurance unit strong in the first quarter and then a lot of -- some of our larger accounts, maybe some of our specialty lines are strong in the first quarter. So my comment is, is that if it's just a middle market broker that we acquired that might think or -- that might have their revenues emerge more equally throughout the year, it would be -- you wouldn't get that lift in margin in the first quarter that you ask. So it's not that they're margin underperformers, it's just the seasonality of their margins. I got a little static the phone, I don't know if that's...

And then in terms of the updated acquisition roll forward, for the 4 quarters of 2021, there's about $81 million of revenue coming in on deals completed in this quarter, which I think it seems like it's a little bit higher than what you gave us in January. So I guess maybe things have slowed a little bit over the past couple of months. But my sense is from the commentary that you guys are expecting a pretty active year with potential tax reform changes, kind of the economy getting better. So would you expect the other 3 quarters to be higher from like an announced deal perspective relative to the Q1?

Yes. I think -- remember, this table is just showing what we've closed thus far through yesterday. And you've got to increase that based on what you think we're going to buy for the rest of the year. I think that some of the lift from where we were a little in January can be 2 things that we did close the Bollington deal. And so the FX on that is actually impacting this number a little bit also. So getting an FX lift there. But yes, these numbers should increase as we do more acquisitions throughout the year.

Okay. And then one last one on, you guys have mentioned, and I think you came up earlier on this call, and on prior calls that with the pending Aon-Willis merger that you guys would benefit from being the third broker on panels is, folks would want to have 3 versus 2. Is that something -- have you guys started to see that? Or is that something that we should think about, assuming that deal closes, they say, half year 1 or at some point this year? Would that be something that would benefit your organics later this year and into next year? Or have you started to see some of that already?

Yes. Elyse, this is Pat. We're seeing -- look, we've seen a very nice uptick over the last decade in interest in Gallagher in the risk management area. And I would not model some sort of an astounding jump in organic growth because this acquisition occurs. I think that we're constantly out telling our story, our story gets stronger and stronger, as Mike just mentioned, we should put -- spend more time on Gallagher drive. It's some very interesting information and those types of capabilities are getting us to more opportunities. But don't think that, oh, my goodness, the thing closes and Gallagher's organic jumps 3 points. That's not going to happen. We fight this battle every day in the marketplace. They're good competitors. The 39,000, I'd refer to agents and brokers in America that we're buying up, we're not buying bad businesses. So there's a lot of competition out there. So it's great for us that we'll be #3. We really -- we coach and counsel our salespeople, please don't use that as a sales tool because, frankly, large customers don't give a darn, they want to know what you can do for them. And that's where our capabilities now will clearly be something that we get a chance to tell more people about, because we'll be the third largest. Also, I think that when you look at it, I get excited about this because there aren't 3 hotel chains, there aren't 3 big law firms, there aren't 3 automobile manufacturers, and there aren't 3 airlines. There's going to be 3 capable brokers.

That's helpful. And I'm going to shove one last one in for Doug. You mentioned potentially using public market debt. And so -- and I think someone else asked the question, right, if there's potential deals that come along that would be larger, right, and potentially require equity, and it sounds like you would maybe consider that. But does the ability to -- issuing public market debt maybe enable you to increase your leverage? I know some brokers, right, will take leverage up in the short-term and then take it back down as EBITDA growth. Can you just -- would that have an impact on the leverage that you could use in a potential perhaps larger transaction?

Yes. I don't think that's something we'd do. I think we're pretty comfortable with what our debt ratio is now. So I don't think that's something that we're going to test the limits on. I think that our history of borrowing, we've got over $4 billion of borrowing out there. So we're experienced borrowers on this. And in the past, we've shown that it might tick up just a little bit. We're never going to do anything to jeopardize our investment -- solid investment-grade rate on this. So -- but stretching that is not something that's in our appetite. There might be a timing right at the end of a quarter or something like that, that it happens a little bit. But we've been experienced borrowers, and we kind of -- we know how to make sure that we keep the elevation on that right at the right spot, not too high, not too low. I think that we'll be able to keep that in there regardless of what the acquisition flow looks like.

Well, I think that's it for everybody. Is that all questions, right?

Yes, Mr. Gallagher. Please proceed.

Thanks. Well, listen, thank you all for joining us this morning. We really appreciate it. As you could probably tell from our comments today, we are very confident we can deliver great financial results in 2021, and we're obviously very excited about our future. So we look forward to seeing you after the first quarter. And that's just 6 weeks away. So hopefully, have a great St. Patrick's Day. Thanks for joining us.

This does conclude today's conference call. You may disconnect your lines at this time.