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 the securities laws. They are subject to certain risks and uncertainties discussed during this meeting described in the CFO Commentary document posted on our website or the company's most recent Form 10-K filing and other filings with the SEC. 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.

Good morning, and thank you for joining us today for our quarterly investor meeting. We've been doing these meetings in a virtual format for over a year now. And for those of you that regularly attend this meeting, the format will be similar to past events. For those of you that are new to our story in these meetings, let me lay out the format for you. I'll kick off the meeting with some prepared remarks and each of our business leaders will speak for 5 to 7 minutes describing their business and touching on topics like organic margins and M&A pipeline. They will also discuss current market factors and provide some comments on what we are seeing so far during the third quarter. Then Doug Howell, our CFO, will wrap up the meeting with some financial commentary. Our prepared remarks should last around an hour in total, and then we'll open up the line for questions and answers from those of you who are dialed in. Before I jump into my prepared remarks, let me start by acknowledging the devastation caused by the recent natural catastrophes, including hurricanes, wildfires and floods. These events have impacted thousands of families and businesses large and small. Our professionals now have the important task of helping our clients file claims, get losses paid and ultimately put their lives back together. At the same time, some of our own employees must do the same for themselves. Once again, the insurance industry is showing what an important role it plays in society, helping to rebuild and restore lives. I'm really honored to be part of such an important industry. Moving on to our agreement to purchase Willis Towers Watson's treaty reinsurance brokerage operations. We remain extremely excited about the transaction. Our team is working tirelessly to obtain the required regulatory approvals and meet the other conditions to closing. We've already received a few regulatory approvals and see no significant obstacles to obtaining all the required approvals. While there is still much to be done, we appear to be on track for a fourth quarter closing. We look forward to welcoming our new colleagues to the Gallagher family of professionals. Ultimately, it's the people that make these operations so complementary to our growth strategy. It's really exciting to think about what we can do together to build upon our strengths and create a whole host of world-class reinsurance solutions for our clients. I'd like to say that I'm extremely pleased how the team has continued to perform throughout this period. We haven't taken our eye off the ball. We continue servicing and taking care and retaining our clients, selling new business and look to close new merger and acquisition opportunities, and most importantly, our bedrock culture continues to thrive. So from my vantage point as CEO, I am very upbeat about our prospects. Let me give some color around why I'm so optimistic, starting with organic. I believe the global economy will continue its robust recovery through 2022 and into 2023. Over the last year or so, businesses shifted from a preservation mindset back into a growth mode and increased economic activity has led to more insured exposures in covered lives. Today, even imagining a possible small lull in economic activity due to the Delta variant, I'm seeing our clients pushing through and still focused on growth for the foreseeable future. And our team is really energized and eager to help clients and prospects navigate a fresh set of challenges ranging from the war for talent, ensuring new equipment, large vehicle fleets or additional locations and properties. These evolving challenges are on top of still rising loss costs, continued P/C rate increases and more limited insurance capacity. While we skew towards the middle market and compete with local and regional brokers, we also have really strong capabilities in the large account risk management and SME space. No matter where we are competing, I believe we are very well positioned to support our clients through our niche experts, thought leadership and data-driven insights. So as we sit here today, I'm confident we will deliver a better second half than first, which we will pull 2021 full year organic towards 8%, which is nicely above the first half of 2021 organic of 6.4%. Moving to our merger and acquisition strategy. 2021 is shaping up to be another successful year. Our global platform is a great fit for successful entrepreneurial owners looking to add value to their current client list, grow their businesses by leveraging our niche experts, data, tools and market relationships, or to help further advance their employees' careers. Joining Gallagher can help them achieve all of these objectives. When I look at our M&A pipeline, we have more than 50 term sheets signed or being prepared, representing approximately $350 million of annualized revenues. While we know that not all of these will close, we believe we will get our fair share. You'll hear more detail from each of our division leaders, but let me give you a global perspective on 2 topics. First, the P/C market, including rate environment and exposure unit changes; and second, I'll touch on new and lost business trends. Similar to the past few quarters, P/C pricing is increasing in nearly all geographies and product lines around the globe. Terms and conditions remain tight, while capacity in certain lines and geographies remains constrained. And there continues to be a few pockets of the market that I would describe as very hard, such as cyber, umbrella and D&O. While relative to percentages of rate increases last year, the increases are not quite as large, yet they are still in the double digits. Double-digit increases in these lines for 2, 3 or 4 years are more rational than up 50%, 75% or even 100% 1 year like we saw in past hard markets, but it is still hard and it illustrates carriers are seeing the need for continued increases to keep up with loss costs. I just don't see carriers overshooting the mark with this measured approach that would lead to a rapid downturn in pricing. At the same time, customers are adding coverages and exposures to their existing policies and monthly positive policy endorsements are trending higher than pre-pandemic levels. Overall, July and August renewal premium increases were similar with the first and second quarters of 2021. By line of business, casualty lines are seeing the greatest increases, up 11%, followed by professional liability and property, both up around 9% globally. And workers' comp is even now up about 3% so far in the third quarter. So the global P/C environment remains hard in several spots and difficult in most other lines, which continues to provide us some tailwinds. Looking forward, I think rate increases are likely to persist for some time. Carriers that reduced capacity in certain lines of business have not reverted back to offering more limits or lower attachment points. Further, many are still intent on holding terms and conditions at current levels. And we are still in hurricane season, and that's on top of losses incurred from Hurricane Ida and other natural catastrophes, including wildfires burning on the West Coast. Combined with social inflation, the potential for rising claim frequency as the economy recovers and low investment returns, pricing is likely to remain challenging for our clients for some time. On the benefit side, the improving employment situation should favorably impact our core health and welfare business with a rebound in covered lives and more HR consulting and special project work. And the war for talent continues to heat up. So we think demand for our expertise is on the rise as employers look to attract, retain and motivate their employees. So rebounding exposure units, firm global rates and a recovering but challenging employment environment, our expertise, product breadth and creativity shine in times like these. One heads up on our benefits business. Recall that we had an unusually large pension life sale in the third quarter of 2020. We highlighted that sale last year in our earnings release and conference call. So Bill Ziebell and Doug Howell will put that into perspective on how that creates a little bit of a tougher compare for organic and margin for the third quarter. Turning to new business trends and retention. Here's what we're seeing in our P/C book of business through the first 2 months of the third quarter. New business production remains excellent, in the double digits as a percentage of trailing revenue and 1.5 points better than the same period in 2020. Client retention remains nicely in the low mid-90s for most of our retail P/C operations. So with excellent new business, strong retention, more favorable net midterm policy adjustments from audits, endorsements and full policy cancellations and favorable rate tailwind, third quarter Brokerage segment, organic, is setting up to be in the 8.5% to 9% range. And you can even add another point to that if you were to levelize for the large life insurance product sale in last year's third quarter. Either way, third quarter organic is shaping up to be fantastic. So let me foreshadow some punchlines you'll hear from the team today. Our U.S. retail P/C leader, Mike Pesch will tell you his business continues to perform very well. New business is excellent. Retention is strong and renewal premium changes are consistent with to slightly better than recent quarters. Midterm policy adjustments are favorable, and our merger and acquisition pipeline is beginning to accelerate. Tom Gallagher will tell you that our international P/C operations are performing extremely well, too. Organic through the first 2 months of the quarter remained strong with growth across all regions: Canada, U.K., Australia and New Zealand due to improving new business trends, higher renewal premiums and a small tailwind from policy endorsements. Then, Joel Cavaness will tell you about the fantastic organic growth we're seeing in our domestic wholesale business, RPS. Open brokerage organic in excess of 20% still leads the way with the MGA program and binding businesses seeing better organic growth than first half levels. Renewal premium changes are broadly consistent with the first half of 2021 and new business production is excellent. Bill Ziebell will then talk about our employee benefits and HR consulting business. We're seeing a nice revenue tailwind from an improving labor market within our traditional medical, dental and vision benefit operations. And with the war for talent in one of the most challenging labor markets, we're seeing more growth across our practice groups, including HR consulting. Looking forward, the tight and recovering labor market, including a decrease in enhanced unemployment benefits should provide a tailwind for growth as employers pivot away from strategies to lower cost to try and to attract, motivate and retain their workforce. Scott Hudson will tell you our third-party claims administration business, Gallagher Bassett, is performing exceptionally well. Third quarter organic is looking like it will be in the low teens as a rebound in employment, economic activity, combined with our continued new business success and solid retention. Core workers' comp claims are approaching pre-COVID levels. We're seeing an uptick in COVID-related workers' comp claims. Then, our CFO, Doug Howell, will bring it all together to tell you what we think this means financially for our third quarter and give you an update on how we see the fourth quarter and full year 2021 playing out. So we're executing extremely well against our 4 operating priorities. 2021 organic should show really nice improvement over 2019 and 2020 levels. Our focus on productivity and quality, combined with strong expected organic positions us to nicely expand full year 2021 margins over 2020 within our Brokerage segment and post above 19% in our risk management business. Our merger and acquisition pipeline is robust, and we're extremely excited about completing our acquisition of Willis Re. And finally, our team is energized and turned on. Our thriving Gallagher culture is a unique asset that helps us support and service our clients while aggressively competing for new ones. I'll stop now and turn it over to Mike Pesch, who's going to discuss our U.S. retail property/casualty operations. Mike?

Thanks, Pat, and good morning, everyone. This is Mike Pesch, and I'm the leader of our U.S. retail property/casualty brokerage operations. Today, my prepared comments will cover 3 topics. First, I'll start by providing you an overview of the business. Second, I'll discuss current P/C market conditions. And third, I'll wrap up with some comments on July and August. So let me start with an overview of our U.S. retail P/C operations. In 2020, we generated around $1.7 billion of revenue that would make us the third largest P/C retail broker in the country according to Business Insurance. We placed more than $10 billion of premium annually through more than 150 offices and have around 7,300 employees, including nearly 2,000 in our centers of excellence. We predominantly serve middle to upper middle market commercial clients, which means we are typically placing between $100,000 and $2.5 million of premium for each of our customers. That translates into roughly $10,000 to $250,000 of annual revenue per client. We also have a decent-sized small commercial personal lines and affinity customer base in addition to a growing large account risk management client list. Our typical middle market client doesn't have a dedicated risk management professional to evaluate risks and manage the purchase of their insurance coverages. So these middle market businesses really need an outsourced risk manager, a trusted adviser, not just someone to place insurance coverage on their behalf. And that's important and aligns closely with our client value proposition called CORE360. CORE360 is the approach we take when we evaluate our clients and prospective clients risk management programs, focusing on key cost drivers of a company's total cost of risk. We find that this approach resonates with clients looking for holistic risk management solutions and advice. And it's really how we are different as a broker. Ultimately, CORE360 embeds Gallagher inside the client's business. Our operations are organized around 30 niche practice groups, industry and product verticals where we have deep expertise and specialized insights. So we believe we better understand the unique risk characteristics of our clients' business and tailor products and services to those industries. Our niche leaders support our producers making sure we are addressing any distinct risks and challenges that those industries are facing. Take a religious institution client. You simply can't handle an account like this if you don't know anything about the distinct needs and risks of a not-for-profit faith-based organization. Ultimately, we think this tailored in-depth approach to risk management is a competitive advantage, benefits retention and drives new business over the long run. And even as we are pivoting back to seeing our clients face-to-face, our producers and niche practice leaders continue to leverage webinars and other online industry discussions and product deep dives that are generating new client leads and revenue opportunities. For example, this year, we have hosted nearly 75 virtual webinars with nearly 4,000 attendees. Topics that range from a 6-part series called Navigating Now that provides clients and prospects, Gallagher's insights on critical risk management topics to insights on risk control and specific practice groups like cyber, energy and product liability. And on our website, ajg.com, we are constantly adding new on-demand content, podcasts and webinars. These include COVID-related topics like vaccine protocols or returning to the workplace. That's in addition to deep dives into various products and niches like education and public entities. And we are adding condensed 10-minute webinars, we call CORE360 Flashcast on topics such as group captives, workers' compensation and loss portfolio transfers. So you can see our clients and prospects have the ability to tap into our expertise any time, any day of the week, and producers are notified if a client or prospect engages with any of our online content. And we continue to see engagements being done in a virtual environment. This approach, which is being driven by client preference allows more of our industry and product specialists to get in front of our clients as our experts are spending less time traveling to in-person meetings, and we have the internal tools to efficiently pull the right experts from anywhere around the globe. Gallagher Drive, our data and analytics platform is a growing differentiator relative to our competitors. Producers are able to show clients and prospects unique insights around purchasing behavior of other Gallagher clients, including what coverage types and limits are being bound. Prospects are now able to take Gallagher Drive platform for a test drive by visiting our website and entering the same -- and entering some basic information. Moving on to M&A. We have a long track record and M&A continues to be an important part of our growth strategy. Most of our tuck-in merger partners are the result of relationships that have been built at the local level. So we know these entrepreneurs very well. We know how they compete and understand their culture. The most important piece is the cultural fit. So we take our time looking for the right partners. Teams that share our same values around ethics and client service want to be with Gallagher for the long term can grow and are already operating at attractive margins. Potential partners are drawn to our culture, the tools, expertise, resources and the platform that we can provide them. We typically target firms generating less than $10 million of annualized revenue. And in 2020, we completed 11 U.S. retail mergers with annualized revenue of about $100 million. Thus far in 2021, we've completed 4 mergers and with challenging P&C market conditions and the potential for capital gains tax changes next year, our pipeline is beginning to accelerate into year-end. Moving on to productivity and quality. Our operations are in excellent shape. The actions we have taken over the past 10 years have led to faster, leaner and more productive work product. We moved into a common agency management system, standardized processes, streamlined workflow and further leveraged our centers of excellence. While margins have benefited from these actions, they also allow us to service customers more effectively. For example, some of our offices near the Gulf Coast remain closed in the aftermath of Hurricane Ida. But due to the standardization of systems and processes, teams from other offices across the U.S. are still able to service clients looking to file a claim, further understand their coverage or are looking to speak with one of our experts. The ability to service any U.S. client from any other U.S. Gallagher office is another influencing factor that merger partners, particularly those in catastrophe-prone areas get excited about. Over the past 1.5 years, the team has done a great job growing our EBITDAC profits. While we did benefit from the natural contraction of travel and entertainment expenses, our focus on operational excellence has been a significant driver of our long-term EBITDAC growth. We are always looking to improve, refine and optimize our operations. The benefits of these operational improvements are then used to fund investments in analytics, tools and new production talent, all geared towards growth. Now moving on to my second topic, the U.S. retail insurance market. There hasn't been a significant change in the market over the past few quarters, and frankly, the market continues to be very challenging for our customers. Nearly every area and line of business is seeing rate increases and there are even a few lines that are hard. Finding significant capacity in certain lines remain difficult, while terms and conditions remain tight. So far, third quarter renewal increases in the U.S. are similar to the past 3 quarters. For example, casualty is up 11%, property up 9% and professional liability is also pushing double-digit increases, as Pat mentioned. Even workers' compensation is up about 3%. Looking forward, it feels like the U.S. market will remain challenging with similar renewal increases given carrier concerns of increased natural catastrophe activity, social inflation, pressed investment returns and the potential for increase in claim frequency. But remember, this type of market environment is when our colleagues shine the brightest. Our job as brokers is to help our clients find the best coverage while mitigating price increases through shopping coverages and tailoring clients' programs by increasing deductibles or reducing limits to ensure their risk management programs fit their budgets. And finally, I'll conclude with some specific thoughts from what we are seeing so far in the third quarter. Recall, organic held up pretty well during 2020, about 4% to 4.5% for the year, and that resilience continued into the first half of 2021 with organic of more than 6%. Based on what we're seeing thus far, I think third quarter organic will be better than the first half, around 9%. So far during July and August, new business is up nearly 2 points, while retention is a little softer than last year's levels. And midterm policy adjustments which we track daily are showing really nice improvement over 2020 and pre-pandemic 2019 levels. It's extremely encouraging to see clients reset their coverage to reflect increased exposures and ultimately, healthier and growing clients. So the business is very well positioned for the remainder of 2021. Our spread of new-to-lost business is excellent, renewal premium increases are broadly consistent with the past few quarters and exposures are improving nicely off 2020 levels. Our client value proposition CORE360, combined with our superior service and data-driven insights is putting us in a position to consistently win. I am extremely bullish about our near-term and long-term prospects. Okay. I'll stop now and turn it over to Tom Gallagher, who's going to discuss our international P/C 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. Today, I'm going to tackle the international portion of our P/C operations following a similar cadence as Mike. First, I'll dimension the business, then I'll discuss the P/C market environment outside the U.S., and I'll close with some comments on the first 2 months of the third quarter. Starting with an overview of the business. We finished 2020 with approximately $1.7 billion in international P/C revenues and placed more than $10 billion of premium on behalf of our clients. Our business is predominantly in the U.K., Canada, Australia and New Zealand. However, we operate in more than 50 additional countries across about 300 different offices. Similar to the U.S., our sweet spot is middle market retail clients. However, we have a strong large account risk management business and that's in addition to small business, high net worth personal lines and affinity clients. Also outside the U.S., we 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. We're a top 5 retail broker in the U.K., generating approximately $400 million of revenue annually. We have more than 75 offices across the country. And like the U.S., we utilize a niche specialist network. We are the largest retail broker in New Zealand and a top 5 broker in Australia. In these 2 countries combined, we have around $350 million of revenue annually. Jumping to Canada. We have about $200 million of annual revenue with operations in 7 of the 10 provinces. Outside of retail, our leading London specialty and global reinsurance platforms are another $500 million of annual revenue. Our international strategy mirrors the success of our U.S. business. We're driving growth by capitalizing and leveraging our niches; working across geographies identifying, completing and integrating M&A opportunities; and using our focus on operational excellence to fund investments and growth opportunities. Across our global footprint, we found many instances what our teams are doing in a particular geography can be institutionalized, applied and delivered to our retail clients around the world. For example, CORE360, which Mike talked about in great detail, has morphed from our U.S. go-to-market strategy to our global value proposition. Our successful SmartMarket platform which was developed in U.S. is now being offered to carriers in the U.K., Canada and Australia. And our data and analytics platform, Gallagher Drive, is being used more and more around the globe. Our cohesive global strategy allows us to further leverage content, insights and thought leadership across borders. This is a key advantage over the smaller local and regional brokers. These firms just can't match our offerings. Moving to mergers and acquisitions. Our reinsurance brokerage unit, Gallagher Re is looking forward to joining forces with the Willis Towers Watson treaty reinsurance operations later this year. Together, the 2 units will combine to provide insurance carrier clients with the best risk management products, advice and service. We see opportunities for further investment in the business both the new talent and tools and to drive additional value for our clients, ultimately driving additional revenues across the platform. Moving away from reinsurance, we continue to see a large number of merger opportunities outside the U.S. And our story is resonating with international entrepreneurs. Our culture, support tools, specialisms and access to data and analytics, all make our partners' businesses better. Partnering with Gallagher can offer them great opportunities to grow their book of business, take their firms to the next level and give their employees' career paths. We completed 6 international mergers so far this year, including Bollington in the U.K., and that is on top of mergers in Canada, Norway, Australia and Turkey. We also announced in April that we have agreed to a minority position in a specialist insurance broker ACE, which will give us incremental expertise and capabilities in the Middle East and North Africa. So really nice momentum in our M&A strategy outside the U.S. In terms of productivity and quality, we've had some really strong EBITDAC margin expansion and EBITDAC growth over the past 5-plus years. Recently, the improvement in growth has been the direct result of expense saving actions we executed on, the natural contraction of travel and entertainment expenses, and additional utilization of our centers of excellence. Many of our expense savings initiatives were already on the drawing board before the pandemic. However, most of them were accelerated in early second quarter 2020, including the increased utilization of our centers of excellence. We think our strategic actions will benefit our long-term expense structure, but more importantly, we believe they will have a positive implications for our quality, which should benefit our growth. Moving to some comments on the global P/C market, let me walk you around the world. In the U.K. retail, renewal premium change is about 7%, leading the way as property in double digits, followed by casualty and professional liability, both in the high single digits, while commercial auto and A&H are in low single digits. Within London specialty, price increases range from mid-single digits to low double digits from most lines of cover. And while rates are still going up broadly, the pace of those increases is just a tad below what we saw last year. Hurricane Ida could cause some insurers to rethink their U.S. cat exposed property pricing, but it's still too early to tell. Australia is up about 8%, property being the strongest line, up about 18%. While commercial auto and professional liability are up low single digits. In New Zealand, renewal premium change is flattish overall, with package down low single digits and commercial auto, up low single digits. And finally, Canada. Renewal premiums are up nearly 10% overall with every line showing an increase of high single digits to low double digits. So let me finish up with some observations from the third quarter thus far. In terms of new business, retention and mid-term policy adjustments, overall, I'm seeing new business better than last year and retention a little lower and a little impact from the positive policy adjustment endorsements coming through. In the U.K., retail is posting new business better than a year ago, while retention is seeing just a little pressure versus last year's levels. Within our London specialty operations, new business was very strong, while retention is holding up well. Canada continues to perform very well on both new business and retention. In Australia, new business is excellent and retention is a bit below last year's levels, impacted by some non-reincurred policies. And finally, in New Zealand, the spread between new business and lost business is similar to last year. So pulling it all together, I'm seeing third quarter organic around 8% to 9% as favorable trends in new business, strong retentions and positive renewal premiums continue to benefit our results. Overall, our international business is performing extremely well and executing on our long-term strategy. We continue to grow organically, grow through M&A and drive productivity and quality improvements. I'm extremely optimistic about our international P/C business in 2021 and beyond. Okay. I'll stop now and turn it over to Joel Cavaness, who's going to discuss our domestic wholesale brokerage operations, known as Risk Placement Services. Joel?

Thanks, Tom. Good morning to everyone. I'm Joel Cavaness, the leader of our U.S. property/casualty wholesale intermediary, Risk Placement Services, or RPS for short. Similar to Mike and Tom, my comments today will focus on 3 topics. First, I'll provide an overview of RPS. Second, I'll cover the current wholesale market environment. And third, I'll wrap up with some observations related to the first 2 months of the third quarter. RPS was founded in 1997, has grown to be the fourth largest wholesale broker in the U.S.A. today. We have about 2,500 colleagues, approximately $500 million in annual revenue, and we placed more than $4 billion of premium on behalf of our clients. As a wholesaler, our customers are not businesses themselves, but rather independent agent brokers that need our capabilities, our products and our carrier relationships. About 75% of our business comes from third-party agents and brokers unrelated to Gallagher with the balance coming from Gallagher retailers. So let me walk through our 3 key businesses: Open brokerage, MGA programs and standard lines aggregation. So starting with open brokerage. Here, we are helping our retail brokers who are having a difficult time placing coverage or need access to a specialty product or an insurance carrier they don't have. We generally go out to the market, negotiate with insurance carriers on behalf of the retailer and their client. It's very specialized and can range from hard-to-place like earthquake, coastal property or flood; and to casualty lines like long-haul trucking or liquor liability. Many times, these placements are complex and insurance programs have multiple carriers and multiple layers involved. Moving to our MGA program business. Here, we underwrite, price, bind and collect the premium and issue the policies, but we don't take any underwriting risk. We have about 40 different programs. They range from country clubs, to food delivery, to amateur sports on the commercial side and personal lines programs, which include lines like nonstandard auto, manufactured homes and other low-value dwellings. And finally, we have a standard lines aggregation. Here, we provide retail agents access to admitted products from a particular carrier. For example, a local agency in a small town might not have a direct appointment with a large insurance carrier. However, the agency can still access those carrier products through us. In essence, it gives that agency more products and perhaps better insurance options for these customers. Our goal is to be a recognized leader in the intermediary market by providing a wide range of services across a very large distribution platform. We compete with many different wholesalers both big and small, but clients choose RPS because of our speed of response, our ease of doing business, our product breadth and the strength of our carrier relationships. So Mike told you that the U.S. property/casualty rates are broadly increasing, capacity is constrained in some lines and terms and conditions are tight. This type of insurance market makes RPS even more useful to our customers since retailers increasingly need our help to place their coverage. And submission activity this year has been very strong, creating even more new business opportunities for us. The higher submission levels are also showing up in our e-commerce platform. Policy counts bound on the platform were up more than 30% during 2020, and that growth in policy counts is carrying over to 2021 with a similar level of growth so far in the third quarter. July saw the largest e-commerce premiums bound. So we have great momentum in e-commerce. Today, we offer thousands of retail agents, more than 30 products on the platform including coverage for home-based businesses, cyber and technology, health care and lawyers E&O coverage. Our suite of products will grow over time, making us even more of a one-stop shop for our retail customers. We also recently began offering SmartMarket to our E&S line carrier partners, and we have 4 insurers currently using the platform. In addition, we're developing unique tailored coverages with our key trading partners. We just rolled out our umbrella-edge product, which will offer enhanced coverage to clients and is similar to the advantage product that was developed on the retail side. I should also mention some exciting things we're doing with technology and robotics in our transportation unit. We can take a single submission. And with the use of bots, generate quotes from leading transportation insurance markets within a day, increasing both our efficiency and quote turnaround times. As we refine this technology, we plan on expanding into other areas of the business over time. So many exciting things happening within RPS. We, too, are a seasoned acquirer. RPS has completed more than 50 acquisitions since the year 2000. That includes 3 in 2020 and 1 so far in 2021. M&A partners are drawing RPS because they realized we can make investments in people and data and open the door to over 13,000 retailers. We look for partners that fit us culturally, add expertise of products to our business and can provide us with incremental M&A opportunities. We don't spend much time on open brokerage wholesale opportunities as we prefer to hire seasons producers and teams. However, we are very interested in MGAs and the program space. And given Gallagher's retail and wholesale presence, we tend to be successful on mergers that have both retail and wholesale pieces with them. Our wide distribution, combined with the current E&S market conditions is driving an incremental amount of opportunities. Our M&A pipeline is very strong. In fact, we have a couple of signed term sheets and hope to close these mergers by year-end. We have seen numerous reports and opportunities in the program space. But frankly, we're passive on most of them, given their limited operating history and valuations. We strongly prefer mature programs that have a decade or more of experience with established risk partners. So moving on to the pricing environment. We're seeing at least a point or more renewal premium changes than what Mike has seen on the retail side. And that's typical. Wholesalers generally see sharper rate increases than retailers. Our data is showing open brokerage renewal changes of about 11% in July and August, which is similar to the first half of the year. This includes double-digit increases in cyber, casualty, commercial auto and professional liability. Even our binding operations are seeing higher renewal changes in the third quarter, the increases today are in the mid-single digits, up from low single digits in the first quarter. Property and professional liability are seeing the largest increases while casualty and commercial auto increases are in the low single-digit range. Capacity continues to be tight, in particular for umbrella and professional liability. Carriers that are still willing to quote these lines of business are increasing price and reducing the limits they're offering. And early estimates from Hurricane Ida are in the $20 billion-plus range. Some of this will be absorbed, of course, by the E&S market. While another large manageable cat loss for the industry, but let's not forget, we're only halfway through 2021 hurricane season. Wildfires are continuing to burn out west. And of course, it's always earthquake season. So the difficult and hardened spot market, we've been talking about a while, is likely to remain for some time. Let me give you a sense of what we're seeing so far through the first 2 months of the third quarter. First, we are having an excellent new business quarter so far with open brokerage new business production even better than binding. Retention rates are similar to last year, with improvements in binding offset by lower retention in open brokerage. Midterm policy adjustments including positive policy endorsements are trending similar to pre-COVID 2019 level. And we haven't seen any indication of a slowdown in activity related to COVID and the spread of the Delta variant within our binding authority or our program space, which is very encouraging. So let me bring it all together, as we sit here today, it feels like our third quarter organic will be in the mid-teens. That comes from over 20% in open brokerage and high single digits in our binding and program business. Together, much better than the 6% reported in the first quarter and slightly better than the 12% that we reported in the second quarter. And I got to tell you, that's just fantastic. So 2021 is setting up to be a great year for RPS. The U.S. economy is growing, insurers are adding exposures to their policy and the property/casualty market environment remains challenging, which is creating more new business opportunities. This attractive market backdrop, combined with our superior service and expertise makes me very bullish on our second half of the year. Long term, I believe that we are well positioned and remain extremely excited about our future. Okay. I'll stop now, and I'll turn it over to Bill Ziebell, who's going to discuss employee benefits consulting operations. Bill?

Thanks, Joel, and good morning, everyone. I'm Bill Ziebell, and I lead our employee benefits and HR consulting business. known as Gallagher Benefit Services, or GBS for short. My comments this morning will focus on a few different topics. First, I'll provide an overview of GBS; second, I'll give you an update on how we're executing; and third, I'll walk you through some takeaways from the first 2 months of the third quarter. Starting with an overview of the business, Gallagher Benefit Services began in the mid-70s and today is 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 operate through 100-or-so different locations spread across the U.S., the U.K., Canada and Australia. However, about 90% of our annual revenues are domestic with 10% being international. Our producers sell traditional health insurance products like medical, dental, vision and other voluntary insurance products that employers offer 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 plan consulting, pharmacy benefit management consulting, retirement plans, executive benefits, individual products and other services that help employers address their human capital needs and organizational wellbeing. Similar to our property/casualty counterparts, our typical clients are middle market employers. And most of the time, we are competing against smaller local or regional benefits firms. However, we also have many larger corporate clients offering them a fresh alternative to some of our bigger competitors, and our small group benefit business is also very formidable. But most of the time, we are targeting and competing for businesses that have somewhere between 100 and 5,000 employees. Within Gallagher Benefit Services, our client value proposition is called Gallagher Better Works. Our approach examines all the levers that an employer has to attract, engage and retain talent. Our experts explore the full spectrum of employee benefits and rewards from financial wellbeing, how employers can maximize the workforce by investing in physical and emotional health, to how employers can offer motivating compensation plan to help retain talent. And the solutions we offer are tailored to align with our clients' specific needs regarding their people from benefits to compensation, to communications and so forth. Clients typically recommend us for our thought leadership, tools and resources, strategic thinking, client-first approach and our high level of service. Pre-COVID, attracting and retaining talent was the top priority for most employers, while controlling and lowering costs was secondary. During the pandemic shutdown, employers shifted their priorities with business continuity and cost control leaping ahead as the top objectives for most businesses. Today, as we come out of the COVID recession, the war for talent is front and center again with our recent national benchmarking survey showing attracting and retaining talent is back again as the #1 priority. And Gallagher Better Works positions us to help our clients attract new talent and drive costs out of their benefit plans. Moving to M&A. Like other parts of Gallagher, GBS is an experienced acquirer and is actively engaged in finding, quoting and completing mergers. Since 2010, we have completed nearly 170 mergers, including 8 during 2020 and 3 so far this year. Merger partners are drawn to Gallagher and GBS due to our specialized practice groups, niche experts, marketing initiatives, thought leadership, technology and our culture. They want these resources and tools and frankly, need them to be successful for the long haul. Our pipeline of opportunities around the globe is growing, but is really heating up in the U.S. due to improved financial results and the potential change in capital gains. So we think 2021 will be another active and successful year for our merger strategy. Let me move on to some comments about sales. We continue to have success selling in-person, fully remote or in a hybrid environment, where in-person meetings are supplemented with experts brought in via video conference. And that's because we are able to deliver greater experts -- or expertise to our clients and prospects at the point of sale. And while I think remote selling and engagement in some fashion is here to stay, ultimately, we will follow our clients lead as to how they would like to interact with our professionals, whether in-person or virtually. During the first half of the year, we released our 2021 State of the Sector Survey, which summarized responses from nearly 800 organizations in 45 different countries. This survey provided insight into best practices for engaging, motivating and retaining talent. And in April, we released a series of articles called Adapting for Tomorrow, which outlined the continuing pandemic challenges facing employers and their workforce. We have seen many new leads following nearly 4,000 downloads. A little over a month ago, we released a series of report focused on workforce trends, which provides an overview of the major topics facing employers today, including people and organizational well-being strategy, physical and emotional well-being and career well-being. And the series has already had more than 10,000 downloads. And our team continues to host monthly downhaul discussions and webinars, bringing our thought leadership to a wide group of clients and prospects. We have hosted 60 webinars so far this year on topics ranging from mental health, employee communication best practices, compliance, to preparing for 2022 open enrollment. These sessions have drawn a lot of client and prospect interest with more than 30,000 attendees so far this year. So whether it's hosting an in-depth industry discussions, engaging with our niche experts or leveraging our thought leadership, these efforts separate Gallagher from the brokers and consultants we are competing with on a regular basis. Let me finish up with some thoughts on July and August. I'll start in the U.S. and recall that is the vast majority of our revenues, about 90%, and close to 80% of that is related to typical coverages you get via your paycheck from your employer, medical, dental, vision and voluntary insurance products. The U.S. unemployment rate is currently a little north of 5%, and our U.S. health and welfare business is seeing some more favorable trends as covered lives come back, providing a small tailwind to revenue. In terms of new business and retention, we are seeing favorable trends relative to 2020. New business in the first 2 months is up 0.5 point over last year, while retention is nearly 1 point better. A few more third quarter industry observations we're making. We continue to see medical plan utilization increase relative to last year's levels. Preventative services are nearly back to pre-pandemic levels, including more consistent utilization of telemedicine. ER visits continue to remain below pre-pandemic levels and are also likely the outcome from the rise of telemedicine. Elective surgeries and medical procedures are trending lower in regions that have been harder hit by COVID and the Delta variant, while other areas of the country are seeing more normal voluntary procedure volumes. As of today, we don't see a significant impact on future costs as it relates to the deferral of certain procedures during the height of the pandemic. However, we do anticipate seeing an increase in disability claims through the end of the year and into 2022 related to COVID long haulers. Moving to the other 20% of our U.S. revenues, which includes our fee-for-service, individual products and retirement consulting businesses. Many of our practice groups are seeing more engagements relative to July and August of last year. However, we did have a large life product sale last year, which will not repeat this year. In total, activity remains below pre-pandemic levels. Revenue within our HR consulting practice group was up 30% in July and August, and is now up 7% year-to-date. I'm encouraged with the number of discussions we are having with clients and prospects regarding new consulting engagements for later this year and into early 2022. And the size of engagements are moving closer to 2019 levels compared to the smaller projects we experienced throughout 2020. This should bode well for future revenue growth. We should also be the beneficiaries of continued economic growth, improving unemployment and tight labor conditions. Frankly, this is probably the most complex labor market we have ever seen, which is driving employers to prioritize strategies to attract, retain and motivate their workforce, which is in our wheelhouse and should lead to more traditional insurance product revenues and consulting work, too. Moving outside the U.S., which is about 10% of our total revenues. Overall, revenue was flattish for the first 2 months of the quarter, with the U.K. and Australia showing slightly better results than Canada. So when I combine domestic and international, third quarter organic feels like it could be up mid-single digits, which is a little better than second quarter organic and nicely above first quarter organic and modestly positive. And if we were to exclude last year's large life insurance pension product sale, we would see organic in the high single digits. In summary, the business is performing very well and is showing some nice organic improvement over the past few quarters. I believe our competitive position, combined with an improving economy and labor market positions us well to continue our positive operating momentum. Needless to say, I am very excited about our future. All right. I'll stop now and turn it over to Scott Hudson, who's going to discuss our Risk Management segment or Gallagher Bassett. Scott?

Thanks, Bill, and good morning, everyone. I'm Scott Hudson, and I lead our third-party claims administration business, Gallagher Bassett. And for those of you who are familiar with our financial reporting, it's shown as the Risk Management segment. This morning, I will cover 3 topics. First, I'll provide you an overview of Gallagher Bassett's business, then I'll give some comments on what we're seeing in the third quarter of 2021, and then I'll finish with some thoughts on our full year expectations and our longer-term positioning. Gallagher Bassett, or GB for short, was formed in 1962 by the Gallagher Brothers and Sterling Bassett. Today, we are one of the world's largest P/C third-party claims administrators and in '20, we generated over $800 million of revenue. About 85% of our revenue is U.S.-based, and the remaining 15% is mostly in Australia, but we also have operations in the U.K., New Zealand and Canada. We have about 6,100 employees, nearly all of whom are working from home, although many of them worked 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 our clients' behalf. To give you a better sense of our size, that annual level of claims volume or claims paid would make us the eighth largest P&C insurance company in the U.S. About 65% of our revenue comes from workers' compensation claims, another 30% or so is liability and less than 10% relates to property claims, of which very little of that is storm chasing. We also have specialty offerings in medical malpractice, products liability, environmental, professional liability and cyber. So we have a nice well-rounded set of products that lines up nicely with our clients' exposures. We break down our business into 4 distinct client segments. First, we serve large Fortune 500 businesses, commercial clients who self-insure or have large deductible programs and then outsource the claims resolution process to us. This is our largest client segment. Second, we serve public sector clients, which include school districts, municipalities, state entities and federal governments. As an example, a significant portion of our clients in Australia are state-sponsored workers' compensation schemes. Third, we serve alternative market or group captive clients. These are generally pooled entities that utilize our services for their claims infrastructure. And fourth, our fourth client segment is insurance carriers. This includes carriers of all sizes outsourcing a portion of their claims handling to GB. We believe clients choose Gallagher Bassett for our deep expertise and superior execution, which results in the best claim outcomes. The definition of best outcome can vary by client and doesn't always mean the lowest cost way to handle a claim. So we customize our service to align with our clients' expectations, whether that be brand protection or customer loyalty, back to work sooner or lower cost. That's how we provide value and 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 tends to be lumpier than the brokerage business, varying from quarter-to-quarter because many of our prospects have large claim volumes. As a result, for the 3 years prior to the pandemic, our quarterly organic growth bounced between low single digits to high double digits. But annually, we ended up running about 5% each year. Recall, we are running that in the first quarter of 2020 prior to the pandemic. But after a tough second and third quarter during the depths of the pandemic, we ended the year down about 3%. First quarter 2021 saw modestly positive organic and second quarter organic was about 20%. We think the second half of 2021 is shaping up to be as strong as the first half, but I'll have more to say about that in a minute. Moving to M&A. Gallagher Bassett is also acquisitive but not to the same extent as the brokerage businesses. Our industry is already highly consolidated and few larger customers are using local TPAs. Our merger 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 completed 2 acquisitions this year, Terrier Claims Service and Total Safety. Terrier Claims Service brings us enhanced claims investigation and property adjusting services, while Total Safety provides a full range of safety services to the construction industry. These 2 firms should add more than $40 million of annualized revenue and are both great examples of how we are expanding our offerings to customers and prospects, particularly in the environmental health and safety space. We believe we have industry-leading margins as well, which were in the high -- were in the 17% to 17.5% pre-pandemic. We improved on that level in 2020 those specific -- through specific targeted actions and the natural contraction in travel, delivering an adjusted EBITDAC margin in excess of 18%. And that was in the face of organic revenues going backwards nearly $25 million. We do believe there are some expense learnings from operating in the COVID environment. Let me give you 2 examples. First, while nearly 40% of our colleagues work from home prior to COVID, we believe that number could double in the future. This should have positive implications on future real estate and other building occupancy costs. Second, I believe the pandemic was a nice test case that proves we can provide clients with a similar level, and in many cases, a greater level of service in a virtual environment. So I think we will see some permanent savings from lower travel over the long haul as well. Looking forward, even as we continue to make substantial investments to improve our products, platforms and service levels, we are expecting margins to be above 19% for the full year 2020. So a really good productivity and quality story. Let's shift gears now and let me walk you through what we are seeing in July and August. First, client retention remains very strong in the high 90s, consistent with historic levels. Second, we continue to see excellent new business trends. We had a great new business year in 2020, and that momentum has carried through well into 2021. The challenging P&C insurance market continues to present us with new opportunities. And in fact, new business year-to-date is up over the same period in 2020. And third, new claims arisings. We are seeing favorable improvement in new claims arisings relative to July and August 2020 levels. Core new claim arisings are up more than 10% with workers' compensation, indemnity claims moving towards pre-pandemic levels. Also worth noting, with the Delta variant spreading across the U.S., we have seen a recent uptick in COVID-related work comp claims as well. So our outlook for organic hasn't changed from what we provided during our second quarter earnings call 6 weeks ago. We continue to expect full year 2020 organic to be just above 10%, which is nicely above pre-COVID levels and a really strong rebound from 2020. We are estimating third quarter organic in the low teens and fourth quarter organic around 10%. Longer term, we remain very well positioned. Revenue retention and client satisfaction remained at very high levels. We're broadening and deepening our claim handling expertise in numerous specialty lines of business, and we continue to make investments to enhance our products and services. As a result, our offerings are resonating with more and more potential customers in the marketplace. So as you can see from our results, the team is executing extremely well, and I remain optimistic about our near-term and long-term prospects. Okay. I'll stop now and turn it over to our CFO, Doug Howell. Doug?

Thanks, Scott. Hello, everyone. Thanks for joining the call today. We hope you have found today's presentations useful and informative. For those of you that are new to our story, we hope you now have a better understanding of our different businesses, our strategies and our operating priorities. Today, I'll cover 3 topics: First, I'll go around and provide a quick recap of what you heard from our business leaders. Next, I'll speak to our expenses and what that means for margins during the second half of '21. Then I'll provide some sound bites from our updated CFO Commentary document that we posted on our website. And finally, I'll wrap up with some thoughts on M&A capacity for the year. All right, to the recap. You heard Mike and Tom that they had very positive commentary on our global retail and specialty property and casualty operations. New business production is excellent. Retention remains strong and positive policy endorsements are trending more favorable and are above pre-COVID levels. Additional renewal premium changes are similar to the first half and are providing a nice tailwind to our organic growth. So it feels like our global P&C third quarter organic will come in somewhere around 8% to 9%. Joel then provided an update on our domestic wholesale brokerage business, RPS. He continues to see fantastic organic results. Open brokerage wholesale operations running over 20% and binding and program businesses are now growing in the high single-digit range. Altogether, Joel's organic in this wholesale unit should be around 14% in the third quarter. Then Bill walked you through our employee benefits and HR consulting businesses. You heard that our traditional health and welfare brokerage is improving along with employment trends. And as the war for talent heats up, employers are pivoting back to strategies to attract, retain and motivate their employee base. So we're starting to see some growth in our HR consulting and other practice areas, too. Right now, it's looking like our Benefits Division will post organic somewhere around 5% for the quarter. That'd be closer to 10% organic if we levelize for the large life sale last year third quarter that both Pat and Bill mentioned. Really nice improvements as employment recovers. So when I sum it all up, it feels like our total Brokerage segment, third quarter organic should be in the 8.5% to 9% range, excluding the large life sale, that would be even 1 point higher, call that 9% to 10%. And certainly a step-up from the 6% and the 6.8% organic we posted in the first and second quarters this year. That's terrific work by the team. Moving to our Risk Management segment. You heard Scott Hudson tell you that the third quarter organic is shaping up to be very strong, up low teens. Given the robust new business, he's posting excellent retention and easier pandemic comparison. We're also seeing another uptick in new arising COVID claims and co-workers' compensation claims are trending closer to pre-pandemic levels. These trends, combined with a growing economy should drive full year organic a little north of 10%. So let me shift gears a bit and talk about expenses and margins. It really continues to be a fantastic story. Recall, in response to the pandemic, we initiated and accelerated a large number of operational improvement and cost reduction initiatives. Almost immediately by the second quarter of 2020, we started saving between $65 million and $75 million a quarter. We did that in the second, third and fourth quarters of '20 and again in the first quarter of '21. Those savings were measured against pre-pandemic expense levels adjusted for the impact of M&A. Then starting last quarter, that second quarter of '21, our year-over-year expense comparisons are no longer against pre-pandemic spending levels, but rather against during-pandemic spending levels. And so it's no longer about additional expense savings, but rather how much of those pandemic era cost savings can we hold. Well, the answer to that is we've been holding a large portion of that. In the second quarter '21, only about $15 million came back into our Brokerage segment expense structure. Most of it -- which related to higher utilization of our self-insured medical plans, a modest tick up in T&E expenses. We advertised a bit more and a little bit more performance-based compensation. During our July 29 earnings call, we forecasted that perhaps about $20 million and then $30 million of costs would return in the third and fourth quarter, respectively, or about $50 million in total during the second half of the year. When combined with organic pushing 9% for the second half as well, the math would say we should still be able to show margin expansion in the second half, leading to full year margin expansion here in '21. Think about that. We expanded our Brokerage segment margins 420 basis points in '20. We expanded margins 270 basis points in the first half of this year. And today, we're still looking at around 30 to 40 basis points of margin expansion in the second half of '21. Stack that up, it would mean that we might see full year margin expansion of about 150 basis points this year. But one heads up about some margin timing over the next 2 quarters, but don't let this dilute the story. There's 3 items for you to consider. First, as we discussed earlier, the large life benefit sale that we had in the third quarter last year, not only creates a tougher compare for organic, but also creates a tougher compare for margins in the third quarter. The second item, in the third quarter '20, that was our most barebones expense quarter, essentially no travel, limited use of consultants paused most of our IT investments, et cetera. Third, relates to the timing of performance-based bonus accruals. Last year in the third quarter, the pandemic was causing substantial uncertainty on how our full year results would turn out. As a result, there was less bonus booked in the third quarter '20 than in the fourth quarter '20. This year, we have been seeing a stronger year all along. This means relative to last year, we will book proportionally more performance-based bonus here in the third quarter and less in the fourth. So keeping these 3 items in mind, it means that we might see 35 to 45 basis points of margin contraction in the third quarter, but that flips around to 90 to 100 basis points of margin expansion in the fourth quarter. Together, you get back to that 30 to 40 basis points of margin expansion for the second half of '21 and to that 1.5 points expansion for the full year. And don't forget, that would be over 5.5 points of margin expansion since 2019, terrific work by the team during a really difficult period. As for the Risk Management segment, we are also having success holding on to savings. Adjusted margin should be above 19% for the third quarter and full year. Again, that's better than pre-pandemic levels, where we were just north of 17%. Let's move to the CFO Commentary document, Page 4. Not much here since July, some small tweaks to FX amortization and depreciation only. So when you move to Page 5 and the Corporate segment outlook, let me highlight 2 items that we will report as non-GAAP adjustments. First, the interest and banking line. That's just a repeat of what we told you on the second quarter earnings call that we're expecting to record a $12 million to $14 million after-tax charge associated with the early extinguishment of those 10-year notes that we issued in May of this year. Second, the M&A line. You'll see that we added a third quarter estimate for onetime legal and due diligence costs related to the Willis Re transaction. Right now, those look like to be $3 million to $5 million after tax. Finally, on Page 5, clean energy. We had an excellent July and August, and early September is running ahead of our July forecast. So we're increasing our full year estimates by $7 million. But as I had cautioned for the last 12 years, a couple of weeks of moderate weather can influence this result a lot. Let's move to Page 7 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 estimates. Finally, to Page 8. Top 2/3 is just a short recap of the Willis Re transaction simply there for reference. The bottom 1/3 of the page provides you some financial items to help you build your models. Specifically, additional interest expense and shares outstanding due to the prefunding of the Willis transaction, and also in yellow are the 2 non-GAAP items I just discussed a minute ago. And also in the footnote, there's a reminder that we no longer plan on repurchasing shares under our $1.5 billion repurchase authorization at this time. Before I close, I want to make some comments on cash and availability for M&A. With a strong net cash generation expected over the second half of the year, that's after dividends, CapEx, interest, taxes, et cetera, plus borrowing capacity, we expect to have upwards of $4.5 billion for M&A here in 2021 before issuing any additional equity. When I look at the pipeline, we have dozens and dozens of opportunities at really fair multiples. So those are my prepared comments. To summarize, our second half and full year '21 organic outlook is even better than our first half. Our expense savings are holding, and we're well positioned to show second half and full year adjusted EBITDAC margin expansion. Our top M&A pipeline is robust, and most importantly, our talented professionals are excited, engaged and they continue to drive new business and retain clients at or better than historical levels. With nearly 3 quarters in the books, it's really looking like another excellent year. All right. Back to you, Pat.

Doug, that sounds good. Let's go to questions and answers.

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

My first question is on the Brokerage side. You guys are still looking for around 9% in the third quarter and then your full year guidance is intact. But just focusing on the back half of this year, when we look at your Brokerage segment, your 2 strongest quarters last year were really the third and the fourth quarter. So those present tougher comps. I mean I know we spoke about the life transaction, but even when we neutralize for that, it's still harder comps relative to last year. So is the reason we put it all together to think that organic is picking up since pricing has kind of been stable with the first half of the year, is it really a reflection of just stronger new business that you're seeing within both your retail and benefits business that's leading to like the pickup even with harder comps in the second half of last year?

Elyse, yes, that's exactly right. I think we're seeing a great -- this is Pat. I think we're seeing a continued strengthening. Mike commented a lot on the capabilities that we're showing in the marketplace, and those are resonating across the middle market. You heard that we're increasing our size basically per account as we continue to move up in the market. So I think that's exactly right. We're seeing a very strong new business, very strong retention. Additions to our accounts through policy changes and audits this year as well. But basically, the business is very strong, and we're taking share.

Yes. And also, it's just showing that we can drop our experts in virtually into a prospect meeting or a renewal meeting. You're hearing that across all of our divisions. This opportunity to present ourselves virtually is really helping us with demonstrating to our customers our capabilities.

Okay. Great. And then my second question, you guys spoke about a pretty active M&A pipeline and just about the potential for capital gains captive to lead to a pickup in deal activity. How strong do you think the rest of the year could be in terms of just the deals that you guys are perhaps able to announce between now and the end of the year?

I think there's tons of opportunity. And I think you're right. I think that with some of the proposals that are being kicked around in D.C. right now, I think you will see more and more opportunities over the next 3 months. On the other hand, we're not going to rush in to do a deal just because they want to reshape their tax burden on this. So for us, we want to know these folks. We want to make sure that they fit with our culture, that they really are joining us for the right reason to use our capabilities and that we can be better together. This isn't just about making sure that the sellers have a better tax advantage.

I really want to emphasize that. I mean I think in times like this, with the competition as strong as it is in the marketplace, we've got to continue to remind ourselves that the deal only fits if the people are going to be with us. If the culture fits, we've been saying this for 25 years, 95% of our due diligence is on the culture and the people, and we want to stick with that. So I do think there'll be more pressure on us to close because of the tax situation, but we're going to maintain our discipline.

Great. And then my last question relates partially to clean energy, your investments. Doug, I just want to confirm, I think in the past, you've spoken about extender bill. I'm assuming the expectation now that we're close to the end of the year is that, that you will just not be able to generate any earnings there next year. And then the second with that question, assuming that is the case, and you also have a lot of intangibles coming on next year with the Willis Re transaction, in addition to what sounds like an active end to this year. Are you guys giving more thought to potentially rolling out a cash earnings metric?

Two things. When it comes to the extender, you always go live in D.C. until you're not. And I would even say with the extenders, it is possible that something doesn't happen before the year and they put something in shortly after the beginning of the year if there's some technical correction. So I wouldn't say that we're out of the woods in terms of -- there's no chance of an extender. I think there's still a possibility of that. On the other hand, if it doesn't happen, that immediately vaults us into a substantial cash earnings on that as we recognize that $1.1 billion of deferred tax assets. So we'll flip -- we showed that in the CFO Commentary, it'll flip from GAAP earnings to cash flows. So if it doesn't happen, we'll take the cash flows, and that's $125 million to $150 million of additional cash flows that come to us. On the subject of cash, I believe that we are -- we will probably do a modification in how we present our information to go to more operating earnings. I don't know if I'd necessarily call it exactly cash earnings because there's issues with that. But if you look at some of the other publicly held brokers, they do a modified cash approach. So I would believe that starting in 2022, we might be in that position, maybe in first quarter. And if we did that, we'd go back and represent history also so you'd have a comparative run rate basis for a few years.

Our next question comes from Mike Zaremski with Wolfe Research.

Mike, perhaps during his prepared remarks, gave an example of A. J. Gallagher having kind of a more specialized approach in some cases to its client interaction and give the example of a religious institution. Any way you can give us a flavor of kind of how to think about what percentage of your work force or the people in sales -- or just what percentage of people are more specialized versus kind of generalists? Or -- because it feels like it's a competitive advantage. Is it just that you guys are doing something a little different? Or is it just that there's product experts kind of within A. J. Gallagher that can help out generalists?

Yes, Mike, this is Mike Pesch. So I would say that more than half of our producers, and we have about 1,500 producers in the U.S., more than half of them have 1 or 2 industry sectors that they focus in on. But when it comes to the real depth of understanding of any particular niche, we have niche managing directors, and we have about 35 of those individuals or teams of people scattered throughout the United States that are focused on helping all of our producers better understand an industry, better understand the coverages, better understand the carrier relationships for carriers who are specialized in those industries. And those folks are constantly putting out internal content and external content to our customers about what the trends are in those industries. So it's a natural way for all of our producers to grab on to information to reach out to those individuals. And those niche MDs, their sole goal is to perpetuate an understanding of that industry all across the country. So they're compensated that way. We want to make sure that they're putting out timely, relevant content to our producers and to our customers. And so I would tell you that nearly every one of our producers touches an industry with a unique or with a specialized focus, it may be 1 or 2 industries. And when our young people come into this business, we immediately route them into an industry that they have an interest in and that they can grow in to again perpetuate that specialization for our customer. I don't know if that answers your question, but that's basically how we do it.

No, that does. Maybe switching gears a little bit. In both Bill and Scott's prepared remarks, COVID long haulers were mentioned. I know overall workers' comp claims, it sounds like are still maybe a little bit below pre-COVID levels. But just curious if the COVID long-haul claims, if you can provide any dynamics? Is this a phenomenon that's persisting? Are they much more expensive? It feels like there's some uncertainty there in the industry on how to size up this trend?

The -- this is Scott, Mike. So let me just reiterate a couple of things. As it relates to COVID claims, specifically in the work comp area. So the trend overall, it peaked earlier this year, where we were seeing a probably upwards towards 2,500 of those on a weekly basis. Then it dipped pretty significantly back to like maybe 100. And then as I mentioned, probably over the last 6 to 8 weeks, we've seen a reasonable uptick in COVID-related work comp claims. So that's the trend with the specific work comp claims. In general, the COVID claims are less serious than a serious typical work comp indemnity claim. So we actually even get compensated a little bit less on those. And the duration of them, it just isn't -- when we talk about long haul, I don't know that we're necessarily seeing anything close to what you might see in some of the more serious work comp claims. So they close out typically relatively quick. One or 2 of them may be a little bit more serious. But the long-haul nature of them really hasn't contributed much to the business. It's just the volume and the fact that they're spiking again more in the short term, and we'd probably expect to see that over the next month or 2 as well.

Yes. And on our side -- this is Bill. On our side on the benefit side, this is the folks in the long haul are obviously affecting their ability to go to work. And so they're transitioning to disability insurance. That's a trend that is still early to really see what the impact will have on rates, things of that nature. But it's certainly a blip that we're watching and see what's going to progress with that.

Very helpful. Maybe lastly on the wholesale business. As P&C pricing on the commercial side more broadly potentially continues to decelerate and maybe that's not the case with Ida, but it sounds like so far, the data points you're giving us are some deceleration even though they're still at high levels. Would you expect within the wholesale segment, less kind of shift of business to the wholesale marketplace potentially as kind of carrier appetites maybe open up? Or is there some secular trends that are kind of just continuing to push more of the overall marketplace towards E&S and away from the standard marketplace?

Yes, Mike. So there's always the fringe, as I call it. So there's some fringe types of exposures out there. They navigate in and out of the E&S marketplace. Those are the first to come in on the E&S market and the kind of the first to come out of the E&S marketplace. But what we're seeing, and if you look at -- need to do a deeper dive on this, but if you look at the E&S space in general, over really the course of the last 10 years, we've seen significant growth into the E&S space. All signs are that will continue for the near-term future. So I would tell you as global warming issues continue to rise, still continuing to see an awful lot of hurricane activity. And of course, we're not out of COVID yet. We haven't seen social inflation really hit the casualty market back to pre-COVID levels because [of course ] generally still continue to be somewhat clogged up and closed. So I think all of those things, and we really look at trends and carrier results, I think it's going to continue to see a continuation into the space. What happened down in Louisiana 2 weeks ago will cause another pullback, what's happening today, reminders of what's going on in Texas today and will be reminders to standard carriers that they need to look to lessen their exposure in certain geographies where there are catastrophic events. And so I -- candidly, I don't see it. You'll see a few little things here and there going in and out of the space. But I think it's -- if you look at it, I think the things that we offer will make the E&S sector continue to grow.

[Operator Instructions] The next question comes from Greg Peters with Raymond James.

I was listening to all of the comments and I did note that Mike and Tom referenced some softer retention levels in parts of their business and -- or businesses. And I just was wondering if you could provide some additional color around what's going on there? Is it -- are you losing -- do you think you're losing business to competitors? Or -- just some perspective would be helpful.

Greg, this is Tom. When you look at the overall, we just make the comment, it's a very, very small change in retention year-over-year, and it's generated largely from our smaller accounts. When prices are going up, they're going to shop. And so they have less value of the consulting services that we provide. And so they've been impacted by the rate increases and we've had some retention issues there. That's it.

Okay. And Mike?

Yes, I would echo what Tom just said. Again, when you're in a market like we're in today, clients are going to look for competitive options and that tends to happen in the more transaction-based businesses, which is that small and small middle market, which has an influence on our overall retention. But when you really break it down, like Tom said, it's fractions of a percent of change, but it is something that we look at, and it's something that we constantly monitor and look to improve our fundamentals to make sure that it certainly doesn't continue and that we can make sure that we're on the forefront of market conditions.

I guess that's why we're writing a lot of new business, too.

Yes. I mean, Greg, I think you see that -- you're seeing dissipate the dynamic of the market is showing up in our new business, very, very robust, which then if you turn around and take a look at a little slip in retention, basically emulates that market out there of shoppers. So we got to be very good at coaching our people, how do you deal with continued rate increases, get out in front of it early, make sure you're talking about which markets, we're really good at that. And so I think it's great that the team is on it, talking about it and there's no excuse to not continue to write the new business. We're taking advantage of a marketplace out there where people are not happy. You talk to any of your friends that are running businesses, they're coming out of a recession, they're dealing with a pandemic and insurance prices are up. There's no 2 ways about it. We happen to do well in that environment in terms of helping to mitigate that, but they're p*****.

The key metric is the net spread between new business and lost business, and that is widening, which tells you that somebody else is -- we're picking up more lost business from somebody else than we're giving up to somebody else.

Yes, that makes sense. Joel made an interesting comment, and I'm sure he's mentioned it before, but it caught my attention this time. And he spoke specifically of bots helping to generate additional quotes, sort of like the use of AI and automating your business processes. I was wondering if you could provide a little more color on that. And then also maybe use that as a platform to talk about how you might use that type of service or product in other areas of your company.

Sure, Greg. So years ago, we started looking at lots of different -- I'm going to speak broadly, and I'll speak specifically to the experience we had of developing procedures and items that we could transform processes through the use of robotics to have a more efficient outcome broadly across the company. So as Pat mentioned, we let 1,000 flowers bloom in our robotics process and RPS was able to take advantage of the use and the experience that we now have broadly across Gallagher in the use of robotics. So what we were able to do, we found efficiency logs and things that we needed to increase our efficiency and the benefit that we've got from increasing our efficiency was also be able to take that process and make more bindable opportunities available to our underwriters and our brokers. So in the transportation space, which is a very large space for RPS. We're by far the largest transportation MGA broker in the country. And we were able to take that robotic process and effectively go ping the rating engines and the various insurance companies that we have underwriters and authority for, and we can put in the data into the robot on time and then it goes out and it [teams] all the various insurance companies rating systems and produces quotes back and in a time that it would normally take to get 1 quote, we get 5 quotes. And then we're -- our underwriters are able to analyze those 5 quotes very quickly to decide which particular insurance company they should work with to get a successful quote. We use it broadly across the country in our transportation space, and it's just really truly been a game changer in the form of efficiency. So we don't have to have somebody sit there and quote 5x. It's 1 versus 5 and then the efficiency that we get is we get more quotes to offer to a retailer. So there's no reason for a retailer to go anywhere else because we're able to provide all quotes from all of its various insurance companies. So it's been a great game changer. And then really to take that process, it's worked so well and take it to the next project and the next project and the next project. So I can't speak to how many projects Gallagher has in robotics, but it's a lot.

Greg, we have over -- we talk a lot publicly about the competitors out there that are touting AI, robotics, et cetera, as a real change. We have the domain knowledge, and we've got over 100 robotic efforts going on right now. We're using AI. Mike ended in what we're doing with Gallagher Drive. He's being able to explain to clients what it is others are buying in their space. People like me buy this. The investment we're making in all of that is incredible and what's coming out of there are just incredible opportunities.

Yes, Greg, I think we've got a leg up on this. I think 15 years ago, 16 years ago, we started standardizing most of our processes, shifting into our centers of excellence. Once the process is standardized, the next step is automation. And so what's going on in our centers of excellence now to automate what has been standardized is truly remarkable. I think it's a competitive advantage. We've been investing in this for 16 years. And I think that the pilot work that Joel and Mike and Tom and Bill have been doing there, it's going to really pay off. And I think that got to standardize first, you got to get it to common processes and then you can automate from that. And it's really terrific and exciting on what's happening in our centers of excellence to do that.

It's actually cool to watch a robot learn. And they do. They learn which is...

Well, listen, I mean -- just as a follow-up on your answer. One of the things that you talked about is generating -- going out and generating automatic quotes, it's like a comparative rater system. My understanding of comparative raters are, when you go out to the carriers, a lot of carriers just put out teaser rates, teaser pricing. How do you -- is that happening in this line of business? Or is it -- are you able to circumvent that with your robotics?

Yes. Remember that, that's an internal process in our particular case, and the underwriter gets the 5 raw quotes and then works them from there. So when we provide the quotation to our retailers, it's already gone through an underwriting process internally, and those are bindable quotes.

Yes, Greg, you're right. There is a lot of teasing going on in that in the consumer lines.

And I'll tell you what, Greg, when you look at our e-commerce platform, take just, for instance, cyber, it's medium and small accounts. So what are we buying in a day on that now?

Hundreds and hundreds of accounts. We have thousands that actually the -- that a retailer can go in, and it is purely automated where they can go out and get bindable quotes that issue in their office. And I think last I looked, we were the third largest cyber provider by number of accounts out there because we're able to provide them bindable quotes where they issue the policy in their offices.

We have over a dozen of those programs right now, Greg. Those are bindable, issuable quotes. That's not a teaser. We think we can do your cyber for this, and it's the retailer he or she can do that on their own, turn to their retail client. If it's a department store, we'll store in a strip mall. Boom, here's your quote. You want to bind it? Yes or no.

That's -- it's a very interesting area. It feels like your success of annual margin improvement has really become part of the fabric of what investors are going to expect every year going forward. So Doug, I know you've mentioned in the past, organic hurdles and stuff. When is there going to be a year where you don't improve your margins? And what will be the contributing factors where you're not able to improve your margins?

Greg, I don't have a definitive answer for you on that yet. We're going to go through our budget and planning process over the next 2 or 3 months here. So I might have a better answer for you in October. But trees don't grow to the moon. There's a lot of things we'd like to invest in. So I think that what you have to answer is -- ask yourself is this. There is natural margin expansion that happens at an organic growth rate, and we might be in a environment now, you got to be above 4% in order to have margin expansion underlying. Then you got to understand what the investment is that's in that layer of expansion. So imagine we post 6%, 7% organic. There would be naturally some margin expansion in that even from where we sit today, not much because we -- there are expenses coming back, but there could be some. But then you've got to ask the question of what's the investment that you're making into it. So when you look at what all the guys are talking about today is they're making investments in their business that should make us more competitive, should lead to better organic growth both in new business and retention. We are in a situation where we compete 90-some percent of the time against smaller competitors that just don't have the resources and capabilities. And if we can just continue to make investments in Gallagher Drive, into SmartMarket, into our service platform, not only through the -- good for quoting, but they're also very good for just raising the quality of that. So the answer to your question is, what the amount of investment would you like us to make every year that would maybe on the surface look like that it compresses margin expansion a little bit. If we were CapEx, you wouldn't see that, right? Going to capital improvement. But a lot of the investments we're making are operating expenses. So what level of investment are we making in the business? Right now, I think that we're making easily a full point to 2 points of investment into the business to make ourselves better on our revenues. That seems to be a pretty good number right now. But going forward, if we're in a perennial 7%, 8% organic rate, we'll probably spend a little bit more of that to make investments so that -- so if organic goes back to 5% or something like that, that we've made investments to keep our organic up. So it's that trade-off between how fast do you want to grow, how many investments you want to make and then how much do you want to let hit the bottom line. So right now, we think our margins are terrific. We think that we're showing some natural margin expansion as we're pushing 9%. But how much higher do we want them to go, that's something we'll take a hard look at this fall.

Got it. I guess my final cleanup question. And I know this is already asked in parts or Scott talked about it. And he did mention an uptick in workers' comp claims. I presume that just relates to a return to more normal environment versus COVID. And then I think you also mentioned, maybe Mike has mentioned that there was an uptick in workers' comp pricing. So I'm just curious what's -- if there's anything in those comments that we should be aware of?

I'll take the claims piece, Greg. The -- so just a reminder, there's a couple of things happening. We are seeing a somewhat faster recovery on the work comp side more so than on the liability side. I did mention it's not yet back to pre-pandemic levels, but they are recovering at a little bit faster rate. The -- there's the COVID claim impact with the uptick of the Delta variant-related claims that we're seeing that's helping us as well. And then the other thing, it's a big contributor just in terms of our claim count growth has been the new business growth over the last 2 years. I mean both -- it's actually now for many years running. But in spite of COVID, we had a great new business here last year. Same thing is happening as well this year. So there is growth in there as well. But just trying to keep you informed that we're not yet -- I mean our kind of work comp levels have not fully recovered to '19 levels quite yet. Nothing more to it than that.

Yes. And Greg, this is Mike Pesch. I would just add in terms of the work comp pricing. For many, many years, workers' compensation was always the most difficult line of coverage and you had carriers out there trying to buy market share, but then they'd have to deal with the losses that ultimately came with worker's compensation. And I think over the past 5 to 7 years as carriers got to understand their clients, our clients' business better and put better controls in place, more loss control procedures, they started to pay off. And so you saw loss costs come down. And as a result, pricing came down. But I think we're at a sort of an inflection point where some of those mitigating factors and loss costs associated with that line of coverage are starting to creep back up. And so that's why we're seeing a bit of a price increase in workers' compensation. I don't know that it's going to get back into the double digits in certain cases, but we're definitely starting to see those loss costs and trends for those carriers creep up over the last couple of years.

Yes. So one of the things about that, too, that as workers' comp rates get over 5%, I just use that for illustration that Mike's team does a really good job of showing folks how they can go -- use a captive or go self-insured and that leads to more business for Gallagher Bassett because people will go into self-insured market on that. So if rates go up, really good risks, we'll look more closely at what our Gallagher Bassett unit can do for them in space. So it's -- there's an inflection point there at some point, but our captives, our claim [paying] business really shines bright during harder pricing in the workers' comp arena.

Our next question comes from David Motemaden with Evercore ISI.

I just had a question on the benefits business. Doug, you said it's trending at about 10% in 3Q, if I take out the life transaction tough compare. I guess maybe could you just talk about the cadence from that 10% level as we head into 4Q. You spoke about cadence last quarter on last quarter's call. It seems like it's coming in better than that. So wondering how you're thinking about that as we -- in 4Q and maybe into 1Q, and I know we start to get tougher comps starting in 2Q next year, but hoping maybe you can just talk about that business because it sounds like things are coming back a little bit stronger than you had thought a few months ago.

David, this is Bill Ziebell. I'll try to answer your question there. As you heard previously, with the economy recovering, you're seeing fighting for talent out there all across the board, all industries. And you can just go to a restaurant and see the shortage in service sector. It's at all levels everywhere you go. What's going on now is a big focus on what can employers do to not only get employees into their ranks, but to keep them as well. So we're seeing an uptick naturally from covered lives on the insurance level, but we're also seeing an uptick in project work, HR consulting, how do we engage the employees better? How do we -- are we not getting our message across, things of that nature. So in this environment, this war for talent, it's for real. It's #1 priority that we're getting from all of our responders to our surveys, how can they do better in terms of keeping their talent? So you're seeing a lot more activity across the board amongst our consultants, whether it's traditional employee benefits, compensation consulting, communications projects, et cetera, et cetera, et cetera. And so there's a lot of demand for our services. And so the trend is actually pretty expected. And actually, we think it's going to continue on into the fourth quarter here.

Got it. And I guess, we've recently in the third quarter in a big way, we've seen some of that enhanced unemployment benefits rolling off. I guess, how has that impacted the line in the covered lives? Have you seen a notable increase as those have rolled off or not really yet?

Not yet. We haven't seen that yet. I think it's too early at this point. One thing to bear in mind, we have a very strong health care niche and a lot of our project work in sales has been for hospitals with pent-up demand to help offset the shortage of nursing staff and things of that nature. But what's interesting is because of the Delta variant rise, you're seeing the hospitals fill up, and there's a lot of focus on taking care of our patients and things of that nature. So we're a little concerned that fourth quarter might slow down just as people start focusing on patient care as opposed to project work. So we're just keeping an eye on that. Just to give you just some heads up on that. But I don't think we're seeing enough yet from anything from the federal subsidies what impact that have on employment levels.

I think you'll see the return to work this fall will show up in our January 1 renewals because at that point, you'll have higher headcount as we go into the renewal. And then it also could mean that a lot of this business is in workers' comp and then in the benefit side is that you get some positive audits, so to speak, later where the amount of payroll that actually was spent shows up as you do audits 3 months, 6 months later of that. So you might see some positive audits developing next year also.

Got it. That makes sense. And then maybe just a bigger picture question. Pat, you sounded positive on 2022, 2023 economic growth. which I think that would probably mean pretty good exposure growth. I guess, how are you thinking about brokerage organic in '22 versus the 8% this year? And I know, Doug, you kind of mentioned -- I heard a 5% number that you threw out there in the theoretical margin discussion to a previous question. Is that sort of a good level to be thinking about? Or how are you guys internally thinking about it as we stand here today?

Well, let me correct the 5% if it was misunderstood. I was using that as illustration of margin expansion over the long term, right? As for next year, we're seeing a year very similar to what this year would be.

I think -- this is Pat. I think that right now, we're in a very strong position as you see employees coming back from the pandemic. That has not stopped yet. I think that's a big part of the war for talent is that these businesses are doing better, and the underlying businesses are stronger. I mean just simple things, try to put a swimming pool in your backyard right now. You aren't getting it for 2 years. And yes, you could talk about the resin backlog and all the rest of that stuff. Not that I'm trying to do that, but I do know people who are. And okay, fine. So that's 1 example. Go buy a car. They'll advertise they're going to bring you a car, but they're not going to bring you what you want. You're not going to get the model you want until middle of next year. When have we see an economy like this, it's been a long time. So I think that this kind of growth level is very possible going in. Then, let's just dream a little here. You want to talk about a broker's dream. Let's have some of the stimulus start to hit the economy that is already robust. Every contractor in our book will be busier than they've ever been. That flows every time you hear stimulus, your broker [ka-ching] and then think about a little bit of inflation because it's there. Inflation is there. It's happening. And I don't want to return to the 70s and all of a sudden, we see mortgages at 16%, but give this brokerage firm 3% to 4%, 5% on top of our organic, just your brokers [ka-ching].

Got it. And so just to confirm, you guys think something similar to a 7%, 8% that you guys are saying you'll do this year is repeatable in '22?

Yes.

Yes, if not better.

Our last question comes from Mark Hughes with Truist.

Doug, I wonder if you might just rough out when you talk about maybe moving to an adjusted operating cash like EPS number, what are the pieces we're talking about? Is it -- you've obviously got the $400 million recurring amortization. What would be more likely to be included understanding it's still early days?

Yes. I think you get to the common elements of -- if you start with the EBITDAC, what comes off of EBITDA. We've got cash for interest expense. Maybe you've got some add back for stock-based compensation. We don't really have a large pension -- unfunded pension number. So that wouldn't cause a big difference for some companies, and I can't even speak to the Brokerage segment. They may have a large cash drag as a result of their pensions, but we don't. Ours has been frozen since 2005, and it's very well funded at this point on that. So when you look at those elements, you get back down and then you've got CapEx versus depreciation. And right now, our depreciation spend is not all that dissimilar to what our CapEx is every year. So in a sense, you've got a capital asset replacement type business here where you spend about as much in CapEx as you do depreciate every year. It goes up a little bit, but not that much. So if you look at those elements and you bake it down and then we'll look at what -- comparatively speaking, what Marsh and Aon and Willis and Brown are doing on that front, and we'll try to come up with some comparative measures. The big difference for us is going to be the add back of cash flows for clean energy, whether that's expressly the way we report it, but there is a substantial amount of cash that will flow back into our company on an annual basis that has to be contemplated as we present our information and how we actually present that, whether it's just an add back of the cash, when we get there similar to a deduct for CapEx, we'll look at that. Ray's got a nice project going on that. And so -- and when we get ready to do that, we'll do a special IR day on that just to help you navigate the differences there of what we're doing.

Would any of the acquisition amortization be added back?

Yes. Yes, I'm sorry. So I'll start with EBITDA and then we've got to talk about adjustments in that. And that's already added back. Sorry on that.

No, no. I just wanted to be clear on that. You did. Okay. All right. Good. That was my only question.

I think that's it for questions. Thanks again for being with us this morning. As you can see from our comments today, we're bullish on 2021 and remain excited about the future, and we look forward to speaking with you again during our third quarter earnings call, which is just 6 weeks away. We'll see you then. Thanks, everybody.

Thanks, everyone.

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