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

Good morning, and welcome to Arthur J. Gallagher & Company's quarterly investor meeting with management. Lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this investor meeting, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. The company undertakes no obligation to update these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements and Risk Factors sections contained in the company's most recent earnings release and Form 10-K and 10-Q filings for more details on such risks and uncertainties. In addition, for reconciliations of the non-GAAP measures discussed during this meeting, please refer to our most recent earnings press release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Jr., Chairman, President and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.

Good morning, everyone, and thanks for joining our quarterly investor meeting. These regular events provide an opportunity for you to hear from our various business leaders, learn more about the Gallagher story, dive deeper into our operations and allows us time to give some more recent industry data points and an update on our company's business performance. Let me walk you through the format for today's meeting. I'll start with some prepared remarks on where Gallagher is today and compare this to our business a decade ago. You'll hear similar comparisons from each of our divisions. I'll also cover current insurance market conditions and provide some high-level indications on our expectations for the full year. Then our business leaders will each speak for 5 to 7 minutes providing background information on our global business, insights into their respective markets and cover relevant operating initiatives. Our leaders will also give you some indications on how the second quarter is playing out thus far. Then Doug Howell, our CFO, will pull all the comments together and provide some financial commentary. Our prepared remarks should last a little over an hour. After that, we will open up the line to the group dialed in for Q&A. Let me start by saying I couldn't be more excited about what we continue to build at Gallagher. Today, the business is in excellent shape with an extremely attractive growth and profitability profile. We have exceptional talent, unmatched expertise across our niche practice groups and a global reach. I believe the business has never been in a better position to compete and to win. Over the past decade, we have transformed ourselves from a predominantly U.S. broker and claim payer into a truly global insurance brokerage, consulting and risk management powerhouse. We have added to our geographic footprint through more than 400 mergers, including from time to time, some larger platforms such as Giles and Oval in the U.K. in 2013 and 2014, Crombie Lockwood in New Zealand, Wesfarmers in Australia, these both in 2014, Noraxis in Canada also in 2014. And more recently, Innovo in Ireland, and significant stakes in large independents in Mexico, India, Eastern and Central Europe and a few countries in South America. Acquisitions also helped expand and deepen our specialty, reinsurance and benefits franchises. From aviation and aerospace in London to our reinsurance start-up Capsicum Re and the purchase of Willis Re, and more recently, the addition of Buck. While today, we are more global, more importantly, our capabilities and expertise have expanded through the addition of more than 30,000 colleagues over the past 10 years. Today, we have about 48,000 employees providing the very best insurance and risk management solutions and services to our clients. We've also invested heavily in our systems which has allowed us to better harness the incredible amounts of data we have. These investments allow us to provide timely insights into various operating trends, help build new products, optimize carrier supply and client demand through SmartMarket and provide our clients and prospects, analytics and comparison tools through our Gallagher Drive platform. All that said, our biggest competitive advantage remains unchanged, our bedrock culture. It's a sales and service-oriented culture focused on what's best for clients day in and day out. Even with all that we have accomplished over the past decade, there remains a lot of opportunity in this growing global fragmented business. So I remain very bullish about our future and truly believe we are just getting started. Okay. Let me move to an overview of the market. First, we continue to see price increases across nearly every line globally. So no real change to the firm to hard-ish market conditions we've been talking about for some time. It's a vibrant market, with differences by line of coverage and by geography. And so far in the second quarter, we are seeing primary insurance renewal premiums up even more than what we had been reporting throughout '22 and early '23. Second, we are not seeing any indications of meaningful economic slowdown within our data. Our daily revenue indications related to positive policy endorsements and audits are showing year-over-year growth through the first 2 months of the second quarter, and we are not seeing any adverse trends in negative policy endorsements or cancellations. Additionally, within Gallagher Bassett, core workers' compensation and general liability claim counts, which are typically tied to business activity, are not showing signs of contraction and are up year-over-year. Third, there continues to be a significant labor market imbalance in the U.S., a favorable backdrop for our Benefits business. While job openings are down from their March 2022 peak of 12 million, there are still more than 10 million openings and only about 6 million people looking for work in the U.S.A. And in the last year so alone, U.S. businesses have added more than 4.6 million jobs, and we are still near half century lows in the unemployment rate. Within that employment picture, I see demand for our Benefits products and services remaining quite strong and believe our talented professionals are extremely well positioned. Shifting to the insurance pricing environment, starting with the primary property casualty insurance market. Through the first 2 months of the second quarter, renewal premiums that's both rate and exposure combined, are up more than 11%, that's higher than the 9% increase in the first quarter and the 8% to 10% renewal premium change we had been reporting throughout '22. Most of our major geographies are showing similar or greater renewal premium increases relative to the first quarter. By major product line, property, commercial auto, general liability and workers' comp renewal premiums in total are all higher than first quarter as well. So while it is widely known that public D&O renewal premiums are lower year-over-year, these declines are being more than offset by renewal premium increases in most other lines of business. And like I said earlier, our customers' business activities remain strong. We are seeing net additions to coverage through midterm endorsements and net positive audits. So the trend of higher midterm policy endorsements and audits has continued through the first 2 months of the second quarter. Overall, though, it's still a tough environment for our insurance risk-bearing partners. They are grappling with stubbornly high loss cost inflation and increased frequency and severity of catastrophe losses. Both have the potential to eat away underwriting profitability, and reinsurance conditions continue to harden, potentially further pressuring profitability. So when I roll it all together, we aren't seeing and don't expect a meaningful slowdown in primary P/C rate increases. And thus, we remain steadfast and focused on helping our clients navigate and mitigate these premium increases. On the Benefits side, medical costs are rising and are expected to accelerate into next year. When combined with the labor market imbalances, we expect strong demand for our consulting services and Benefit solutions through the remainder of '23. Rising global renewal premiums, a tight labor market, a resilient economic backdrop, growing claim counts, rising severity, it's a terrific environment for robust growth. So our 2023 outlook for growth is better today than it was just 7 weeks ago. Recall, we were seeing full year broker segment organic in the 7% to 9% range. As we sit here today, I'd say it's more likely to be in the upper half of that range than the lower. Doug will speak more about the unevenness in reported organic over the next 3 quarters. But regardless, it's looking like another year of excellent organic growth. As for our Risk Management segment, we are also seeing full year organic a bit better than 7 weeks ago. We continue to see strong new business and growing claim counts from our existing customers. So it's looking like our Risk Management business could post full year organic towards 13%, with our second quarter organic being the standout quarter due to the roll-in of those new business wins. Doug will give you some quarterly breakdowns, too. That level of organic in both of our core businesses would be fantastic. Moving to mergers and acquisitions. The core part of our strategy is to find and acquire entrepreneurial owners looking to grow, whether it's leveraging our expertise or gaining access to our vast number of insurance and Risk Management products or seeking to improve service levels, joining forces with Gallagher can take their business to the next level, all while providing a platform to help further advance their employees' careers. Our dedicated merger and acquisition staff along with branch managers and regional leaders, all help identify potential merger partners. We're seeing some early signs of a mood shift away from private equity to a slow shift and there remains ample competition but I believe we will be getting more and more opportunities to buy well-run, growing merger partners. So when I look at our tuck-in merger and acquisition pipeline today, we have nearly 40 term sheets signed or being prepared, representing more than $400 million of annualized revenues. Good firms always have a choice of who to partner with, and we will be very excited if they choose to join Gallagher. So let me take a moment and give you some quick sound bites of what you'll hear from the team today. Mike Pesch will tell you our U.S. retail P/C business is performing well. New business production is a bit better than last year, renewal premium changes are in the double digits, and midterm policy adjustments are trending higher year-over-year. Patrick Gallagher will tell you our non-U.S. retail P/C operations are performing exceedingly well. New business production is above last year's level. Retention remains strong, renewal premium increases are in the low double digits overall, and we are seeing a small tailwind from positive midterm policy adjustments and other endorsements. Then Joel Cavaness will tell you his wholesale brokerage business is expecting strong second quarter performance. Open brokerage renewal premium increases are again in the teens and binding renewal premiums are up in the high single digits. Tom Gallagher will tell you that our specialty P/C and reinsurance units are performing extremely well. Second quarter organic growth is again expected to be excellent in the double digits. Reinsurance integration is progressing nicely and our teams are seeing growth from new business, pricing and exposures. Then you will hear about our employee benefits and HR consulting business from Bill Ziebell. He will tell you trends within our core Health and Benefits business are solid, and demand for our consulting practices, notwithstanding the tough life sale comparison remains excellent. He will also give you some thoughts on Buck. Scott Hudson will tell you our third-party claims administration business, Gallagher Bassett is expecting another fantastic organic quarter due to new business, stable retention and growing claim counts. Then our CFO, Doug Howell, will bring it all together and tell you what we think this means financially for our second quarter and full year '23 results. I'll now stop and turn it over to Mike Pesch, who's going to discuss our U.S. retail P/C brokerage operations. Mike?

Thanks, Pat, and good morning, everyone. I'm Mike Pesch, and I lead our U.S. retail property and casualty brokerage business. My prepared remarks this morning will touch on 3 topics. First, I'll provide an overview of our U.S. retail P/C brokerage business; second, I'll discuss current insurance market conditions in the U.S.; and third, I'll give you some early indications of how the second quarter of 2023 is shaping up so far. Starting with an overview of our U.S. retail operations. In 2022, we generated more than $2.1 billion of revenue, making us the third largest P/C retail broker in the country according to Business Insurance. Relative to a decade ago, the business is about 2.5x larger, growing both organically and through more than 150 acquisitions. Today, we placed more than $15 billion of premium annually and have around 8,600 employees, more than 1/4 of employees are based on our centers of excellence, a significant increase relative to 10 years ago, giving us an amazingly strong platform for future growth and scale. Our U.S. retail business serves clients of all sizes, small, medium and large. However, we have always been more concentrated in the middle to upper middle market. These middle to upper middle market clients insurance programs are typically between $100,000 and $2.5 million of premium, which translates into roughly $10,000 to $250,000 of annual revenue to Gallagher. We also have a meaningful and growing large account client list and a formidable small commercial affinity and personal lines customer base, including high net worth clients. While we serve commercial enterprises of all sizes, we find the middle and upper middle market particularly attractive and that's because these clients typically don't have a dedicated risk management professional, it has more complex insurance needs. So they rely on our experts to identify, evaluate and help them manage risk on their behalf. And of course, we find the right markets to place their insurance coverage. That aligns very well with our client value proposition called CORE360. CORE360 focuses on the 6 key cost drivers of the total cost of risk for Risk Management programs. This approach resonates with clients looking for Risk Management and insurance solutions and embeds Gallagher inside our clients' business. And our ability to analyze the key cost drivers is strengthened by our niche practice groups. Over 30 niches are different products and industry verticals, where we have subject matter experts with specialized knowledge and deep insights. Leveraging these practice groups, we better understand the unique risk characteristics of different businesses and can tailor pricing services to those industries. And our niche leaders work together with our producers in the field, making sure we are identifying and addressing the distinct risks that those industries are facing through focused offerings and coverages. Take, for example, higher education. We have a group of industry experts that understand the unique risk characteristics of colleges and universities available coverages and potential risk mitigation techniques. These experts work closely with our producers to ensure that coverage purchased align with risk tolerances and cover client exposures. We believe this tailored approach to risk management and insurance procurement is a competitive advantage. We also have a national risk control offering. This is a group of more than 300 professionals that work with clients to develop safety protocols and Risk Management programs while also assisting in claims resolution and advocating on behalf of our clients. Additionally, our industry experts, thought leadership, online tools and web-based industry discussions continue to generate new client leads and revenue opportunities. Through May, we have hosted more than 60 webinars this year, this includes our CORE360 Insight series in partnership with RIMS and various other webinars on topics such as property risk strategies, ESG and climate resilience. It also includes nearly 20 webinars from our National Risk Control group, all of which are available on demand, and we are continuously adding valuable content to our website, including our CORE360, Flashcast, condensed webinars on various industry-related items such as emerging cyber threats and most recently, how to navigate the regional banking situation. So requires and prospects have the ability to tap into our network of experts 24 hours a day, 7 days a week. In any time a client or prospect engages with any of our online content, our producers are notified. Moving on to technology. On top of enhancements to SmartMarket and Gallagher Drive, which Patrick will speak to next, we have launched Gallagher Submit, our online client renewal platform. Here, we are harnessing technology to reduce the friction in the renewal process for clients. And with many of our carrier partners embracing digital engagement, it's making the quote process easier and more efficient. So a lot of exciting things going on within the U.S. retail. And remember, we compete with someone smaller than us, 90% of the time, these local brokers just can't match the value we provide. Moving to mergers and acquisitions. We have a proven long term track record of successful tuck-in M&A, and it continues to be an important part of our shareholder value-creation strategy. Typically, we are targeting firms generating less than $10 million of annualized revenue, that share our company's values around client service and ethics. Entrepreneurs that want to be with Gallagher for the long term know how to grow their business and are already operating at attractive margins. Many of our merger partners are the result of relationships formed at the local branch level and have been developed over time. So we know the owners and their families very well, have seen how they compete and have a good understanding of their culture. During 2022, we completed 14 mergers and through May, we've completed 10 more in the U.S. retail. We have a really nice pipeline of opportunities across the country, so '23 is already shaping up to be a successful year on the merger front. Moving on to my second topic, U.S. retail and insurance pricing. Overall, the pricing environment continues to be challenging for many of our customers. Depending on the line of business, many of our clients are seeing their third or fourth year of renewal premium increases. So far in the second quarter, renewal premium changes that both rate and exposure combined, are up 14% with nearly 80% of renewal premiums seeing year-over-year increases. The 14% increase is above first quarter '23 and full year '22 levels, due to accelerating property renewal premium increases, combined with a higher proportion of property business renewing in the second quarter. Casualty lines, including umbrella, are also seeing sizable increases in the high single digits. Workers' compensation renewal premium increases are in the mid-single digits with cyber, flattish and D&O still seeing year-over-year declines. Personal lines, including our private client practice, continue to face very tough market conditions. As carriers reduce capacity in certain geographies, it's been a real pain point for many of our clients. So while renewal premium increases are higher than first quarter and full year '22, they can vary by client loss experience. We are seeing more good accounts get some premium relief in certain lines. However, accounts with poor experience are seeing greater increases. Overall, though, we are just not seeing much reprieve in renewal premium increases. Looking ahead, we believe the pricing environment will remain similar to recent periods, continued increases stemming from inflation, macro uncertainty and increasing reinsurance costs. So our challenging outlook for clients continues. But remember, our job as brokers is to help our clients find the best coverage while mitigating price increases to ensure their Risk Management programs fit their budgets. And I believe we have the best team in the industry. And finally, I'll conclude with some thoughts on what we're seeing so far in the second quarter. Through the first 2 months, we are seeing double-digit renewal premium increases, new business production and retention better than 2022 levels, a shrinking impact from less transactional-related business from IPOs and M&A as we begin to lap the tough comparison to last year and a nice year-over-year tailwind from midterm policy adjustments, including higher audit premiums and positive policy endorsements. So based on what we are seeing thus far, we think second quarter organic will be somewhere around 10%. So what's different today from 10 years ago? Almost everything other than our client-first, team-driven culture. Today, we have more data-driven insights, timely thought leadership, a wider and deeper group of niche experts, a growing internship program, higher quality and measurable customer service, more access to complex solutions and a recognizable brand. All of this positions the business for future growth, and I believe the team can consistently win. I am very bullish about our near- and longer-term prospects. Okay. I'll stop now and turn it over to Patrick Gallagher, who is going to discuss our international property/casualty retail operations. Patrick?

Thanks, Mike, and good morning to everyone. This is Patrick Gallagher, and I lead our Americas Retail Property/Casualty Brokerage business. Today, I'll focus on the remainder of the Americas, including Canada, South America and the Caribbean. I'll also comment on a portion of Tom's world at our retail P&C units in the U.K., Australia and New Zealand. So much of what we've done and are currently doing in the Americas has been translated and adopted by our retail P&C units around the world. So it makes sense to group these geographies together because they share many of the same initiatives, and it also lets Tom focus more of his comments on specialty and reinsurance. Today, I will first dimension our international businesses, provide some comments on each of our main geographies and give you some insights on how our operations have evolved over the past 10 years. Second, I'll discuss the P&C pricing environment outside of the U.S. And then I'll finish up with some comments on what we're seeing thus far in the second quarter. Starting with a high-level overview of the international retail businesses. We finished 2022 with more than $1.5 billion in revenues, placing more than $8 billion of premium on behalf of clients. We operate in about 60 countries globally yet our business is largest in the U.K., Canada, Australia and New Zealand. And what a change from 10 years ago. Frankly, we weren't geographically diverse. In fact, our annual international P/C retail revenues were a bit more than $150 million and generated mostly from the U.K. with a smattering from only 16 other countries. We had no presence in New Zealand and only modest retail operations in both Australia and Canada. Combined, these 2 countries had less than $60 million of revenue. Our U.K. retail business was pushing $100 million of annual revenue and most of that came from our 2011 acquisition of Heath Lambert, and none of those locations were using our U.S. playbook to any meaningful extent. Today, each of our major international platforms have significant scale. For example, our U.K. retail business generates more than $600 million of annual revenue. We are a top 5 U.K. retail broker and have more than 75 offices across the country. Within Canada, we operate in 8 of the 10 provinces, generate about $300 million of annual revenue and are a top 5 commercial broker. In New Zealand, we are 1 of the 2 leading retail brokers in the country. And in Australia, we are a top 5 broker. In these 2 countries combined, we have around $500 million of revenue annually and nearly a 100 different locations. And each of these platforms are leveraging our sales tools and techniques and our offshore centers of excellence for various portions of their client-servicing efforts. Today, the international operations are utilizing nearly 2,000 employees within our centers of excellence. That's a significant shift from 10 years ago. In these countries, our sweet spot is also middle to upper middle market clients, similar in size and complexity as our U.S. customers. At the same time, we also serve a wide range of large account Risk Management business, smaller enterprises and high net worth personal lines. Strategically, our global operations, sales tools and techniques near the U.S. A few examples of this. First, CORE360, while initially introduced 7 years ago as our U.S. go-to-market strategy, and approach to risk management, CORE360 is now part of our global retail value proposition. It's the foundation of our discussions with clients regarding their Risk Management programs; second, our niche practice groups. Many of these experts are organized and utilized at the global level, including energy, real estate, hospitality and marine. This allows clients of all sizes around the world to benefit from our deep industry knowledge and expertise; third, SmartMarket. Like many of our enterprise-wide tools and platforms, it too was originally developed in the U.S. Today, SmartMarket is being utilized by carriers in Canada, Australia and the U.K. We have approximately 20 non-U.S. markets using the platform, including a new relationship in Canada, and we expect that number to increase over the next 12 months. And finally, our data and analytics platform, Gallagher Drive. It continues to put us ahead of our competition. The insights we are able to provide clients and prospects include trends of other similar Gallagher clients around the globe, including what lines of coverage are purchased, limits that are ultimately bound as well as potential catastrophe exposure and claims forecast. Our clients and prospects are asking for more data-driven insights, and we are seeing increased utilization by our producers around the globe. So our global strategy is cohesive. It allows us to develop a process, a product, a client service offering or a new sales tool and deliver it consistently anywhere across our global footprint. I just got back from Canada where I spent some time with numerous customers. Frankly, clients have been blown away by our data analytics and technology from CORE360 to Gallagher Drive. These offerings provide tremendous value to our clients. It's a key differentiator over our competitors. Remember, 90% of the time, we are competing against a small local or regional broker. They just can't match the offerings, insights, expertise or the service. Moving to mergers and acquisitions. Our sales cultures, combined with our systems, tools, data analytics, niche experts and superior carrier relationships continue to make Gallagher a merger partner of choice for entrepreneurs around the world. Joining forces with Gallagher allows owners to take their firms to the next level, grow their books of business, give their employees' career paths and provide a distinct brand advantage. During 2022, we completed 9 retail mergers throughout the U.K., Canada, Ireland and Australia, and that global activity has continued nicely into 2023. For example, in January, we acquired First Ireland, which adds to our commercial middle market and personal lines offerings and follows our initial move into Ireland last year with Innovo and Doyle Mahon. And in March, we further strengthened our U.K. public sector and education-idge practice groups with the acquisition of FE Protect, which serves independent schools, universities and other postsecondary learning institutions. So we continue to expand our geographic footprint and deepen our expertise. Looking forward, our pipeline of opportunities remains very robust and continues to grow. We have a proven story today outside of the U.S., but frankly, we just didn't have a decade or so ago. Moving to my comments on the insurance pricing environment. Let me walk you around the world and discuss what we're seeing in April and May versus the same 2 months of '22. In the U.K., renewal premium changes, both rate and exposure combined, is increasing 12%. Leading the way in double digits is property, package, general liability and commercial auto, while professional indemnity is up around 5%. In Canada, renewal premiums are up 7% overall. Package is seeing the largest increases in the low double digits, while general liability and property are up around 5% each. Renewal premiums in Australia are up 11%. We are seeing double-digit increases across most lines of business. Exceptions include transportation, up high single digits and D&O, which is flattish. New Zealand's renewal premium change is more than 15% and most lines are seeing increases in the teens, including property, commercial auto and general liability. Let me finish up with some additional observations from the first 2 months of the second quarter. First, new business production remains excellent and is similar or better to 2022 levels; second, revenue retention trends remain very strong across our major geographies somewhere in the low 90s overall; and third, we continue to see a small tailwind from positive midterm policy adjustments and other endorsements. Pulling it all together, I believe our international retail organic could be around 9% to 10% for the second quarter. So like our U.S. retail operations, all of our international retail brokerage businesses continue to perform extremely well, and we remain very excited about '23 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, Patrick. Good morning, everyone. I'm Joel Cavaness. I lead Risk Placement Services or RPS for short, which is our U.S. property/casualty wholesale intermediary. Following the same cadence as both Mike and Patrick, my comments this morning will focus on 3 topics. First, I'll begin by providing an overview of RPS; second, I'll give some comments on the market and pricing environment in the wholesale space; and then third, I'll wrap up with some observations related to the first 2 months of the second quarter. So RPS was founded in 1997, and we've grown organically and through M&A to be the fourth largest wholesale broker in the U.S. Over the past decade, our annual revenues have more than tripled to over $600 million. And today, we place more than $5 billion of premium on behalf of our clients. As a wholesaler, our customers are independent agents and brokers that need specialized capabilities, unique or differentiated products and access to our carrier relationships. We were established to solve the insurer's needs of all of our retail agents and brokers. And through our history, most of our businesses come from independent agents and brokers unrelated to Gallagher. Today, about 25% of our business comes from Gallagher retailers, while 75% is sourced from unrelated firms. RPS offers solutions to our clients via 3 main businesses, our open brokerage; our MGA and programs; and our standard lines aggregation. Let me describe each one. Within open brokerage, we support retail brokers with access to specialty products. We find coverage and negotiate with certain insurance carriers on behalf of the retailer and their client. The coverage as we deal with tend to be very specialized and can range from hard-to-place property to complex casualty lines. Placements in open brokerage tends to involve multiple layers and carriers to fill out a particular program. Over the past decade, we've added or deepened our expertise in many different industries like trucking and other lines such as executive and personal lines. Next is our MGA and program business. Here, we underwrite, price, bind, collect premium and issue policies on behalf of insurance carriers and most importantly, we take no underwriting risk. Over the past 10 years, we have more than doubled the number of programs we offer to our retailers. Today, we have around 40 programs spanning across both commercial and personal lines coverages. Our commercial programs range from food delivery to coverage for country clubs and our personal lines program include insurance coverage for nonstandard auto, manufactured homes and other low-value qualities. And our third business is standard lines aggregation. Here, we provide retail agents access to admitted products from insurance carriers that they don't already have relationships with. For example, a smaller agency may not have a direct appointment with a certain carrier. However, that agency can still access that carriers products through us. So it allows a smaller agency more insurance options for its customers. We compete against a wide range of wholesalers, MGAs and program managers, but our clients, the retail insurance brokers, choose RPS because of our quick turnaround times, ease of doing business, product rep and the strength of our carrier relationships. And we are constantly working to improve our service, products and offerings through regular engagement with our clients. A few years back, we also built our client relations team to provide a concierge level service to a larger and more national retail partners. Ultimately, our goal is to be the recognized leader in the intermediary market by providing a wide range of products and services across a broad distribution platform. So Mike told you that the U.S. retail property/casualty market is challenging for property and many other lines of business and a challenging retail or admitted insurance market is typically a growth tailwind for RPS since retailers need our help to place coverage. So helping our retailers quickly and efficiently find capacity and coverage is paramount. And we've been focused over the past decade on establishing processes, adding capabilities and building technology to become the wholesaler of choice. For example, we established our e-commerce platform in 2017 to allow retailers to easily and seamlessly interact with us. Today, our retail clients can access more than 32 states' specialty products through an online interface. And we're constantly adding products including some construction, some transportation and other cyber-related coverages more recently. We're also harnessing data on more than $5 billion of premium we place in the market. Today, we can leverage this information to provide better advice to clients, develop new products and programs and provide more timely insights into our own business. You also heard Mike and Patrick talk about our SmartMarket platform, which allows a more efficient matching of carrier supply and customer demand. We, too, have a number of E&S markets using the platform and think that we're going to add more in the course of '23. So our strategy to become increasingly digital is positioning us as an even more attractive partner for many of our retailers. So shifting over to mergers and acquisitions. RPS is also an experienced and seasoned acquirer. We have completed more than 30 acquisitions over the past decade, including 4 last year and 2 so far this year. Our merger strategy emphasizes expertise and new product offerings, but cultural fit is of utmost importance. We tend to be more interested in the MGA and program space since many open brokerage wholesale opportunities can be replicated with seasoned producer hires. Merger partners are drawn to RPS because of our culture, the investments that we make in people and data and our wide-reaching network of retailers. And given Gallagher's presence in both the retail and wholesale insurance markets, we tend to be very successful on opportunities that have dual retail and wholesale elements. We continue to be very selective with the firms we pursue, and our M&A pipeline remains very strong. So moving to the domestic wholesale rate environment. The E&S market has shown strong growth over the past number of years. That's driven by risk leaving the admitted market of personal and commercial lines combined with strong exposure growth and rate increases. We expect a high level of premium growth to continue for the foreseeable future. So through the first 2 months of the second quarter, our data is showing open brokerage renewal premium increases of more than 13%. That includes about 2/3 of the business see renewal premium changes of 10% or greater. Property and umbrella premiums are up mid- to high teens while most other lines outside of D&O are up mid- to high single digits. So despite insurers getting multiple years of rate increases, most of our carrier partners are still unwilling to deploy large limits on any 1 risk, thus large and complex insurance towers continue to be extremely difficult to place. We're also seeing large renewal premium increases across our homeowners and auto books. Homeowners business in the Southeast and the West Coast is very challenging since the already limited capacity is being further restrained by rising reinsurance costs and reduced competition as certain carriers are no longer writing new business or have plans to exit completely. Moving into our binding operations. We're seeing about 8% renewal premium changes so far in the second quarter. That's similar to the first quarter, but above full year '22 renewal increases. Property package and umbrella renewal premium increases are all in the double digits. So needless to say, the market remains difficult. Let me finish with a few more data points from April and May. First, new reoccurring business production and client retention remains strong and both are pretty consistent with prior year. Midterm policy adjustments, including policy endorsements and audits, both trending a bit better than last year's levels. So bringing it all together, it feels like the second quarter organic for RPS will be around 10%. So in summary, the E&S market remains challenging for our clients. However, I believe that we've never been better positioned. We've been hard at work in building our digital capabilities, harnessing our data, developing analytics and growing our portfolio of products and programs, and when combined with our outstanding service and our carrier relationships, we have a winning combination to help solve our clients' insurance needs. So sitting here today, we are in a great position to deliver another excellent year at RPS. Okay. I'll stop now. I'm going to turn it over to Tom Gallagher, who's going to discuss our London specialty and global reinsurance operations. Tom?

Thanks, Joel, and good morning to everyone joining us on the call. This is Tom Gallagher, and I lead our Global Property/Casualty brokerage business. Since Mike and Patrick have already touched on our various retail units, my comments today will focus on London specialty and reinsurance brokerage. First, I'll quickly dimension these 2 businesses. Second, I'll touch on some operational priorities and M&A. And then I'll finish with some comments on the pricing environment and provide an early look at second quarter organic. Starting with an overview of the London specialty and reinsurance businesses. Combined, we finished 2022 with approximately $1.4 billion in revenue, $500 million in specialty and $900 million of revenue in reinsurance, a leading London specialty broker has roots getting back to the mid-70s and has tripled in size over the last decade. We have grown both organically and through M&A, like our opportunistic aerospace purchase in 2019, to be one of the largest specialty brokers in the London market. We currently have around 1,000 colleagues, which helped in the placement of more than $5.5 billion in premium annual. Let's split about evenly between the Lloyd's market and the company carrier markets. About 1/3 of the specialty business is North America risk, another 25% from the U.K. and the remainder from countries around the globe. In our London Specialty business, we focus on larger commercial clients and also support retail agents and brokers around the world place their specialty insurance solutions across 6 main divisions, aerospace; marine; financial lines; construction; energy; and property. Moving to Gallagher Re. Our reinsurance brokerage business, which was formed through the combination of our 2013 start-up Capsicum Re and the purchase of WTW treaty reinsurance business. Today, Gallagher Re operates from around 70 offices across more than 30 countries and is the third largest reinsurance broker in the world. Our nearly 3,000 colleagues provide a wide range of risk transfer products and services to more than 750 underwriting enterprises around the globe. Following James Kent's decision to retire from the industry, after 35 years of service, he has handled the leadership put on to Tom Wakefield, who will lead the global reinsurance business going forward. Looking ahead, I see a lot of exciting opportunities in specialty and reinsurance, and we have a number of growth-oriented initiatives. A few to note include SmartMarket. We are successfully piloting and have already signed up a number of London specialty markets to the platform. We think there is more opportunity across loan and specialty for SmartMarket. Adding niches and specialisms, we are focused on adding to our growing list and we have begun delivering new products in growth areas such as mortgage and cyber. At the same time, we are also expanding our direct and facultative reinsurance offerings to our businesses around the globe. Three, bringing in new talent. We're adding colleagues that will expand or deepen our expertise across reinsurance and our 6 specialty training units, including leveraging our graduate program, Gallagher Futures. Four, capitalizing across divisional opportunities. We are seeing terrific opportunities, whether it's the Gallagher Bassett, our retail operations or our global MGA and programs operations. Moving to mergers and acquisitions. We are constantly approaching potential merger partners across all of our businesses around the globe, and specialty and reinsurance are no different. The list of potential opportunities in these markets is more limited than on the retail side. However, we have completed a couple of mergers recently. On the specialty side, we acquired Another Day, a risk management consulting firm focused on larger corporate clients. More recently, Gallagher Re acquired Bay Risk Services to expand our global programs practice. Looking forward, we continue to talk with a number of firms and have a strong pipeline of targeted opportunities. Before I move to market conditions, a quick update on the Willis Re integration, I am currently in the U.K. visiting the team, and they are making great progress against our multiyear plan. Since we last spoke, we have crossed a really nice integration milestone and are now operating on our own instance of IT systems. Over the next year, we have line of sight to be substantially done with our operational integration. Needless to say, I am incredibly pleased with team's efforts. Moving to my comments on the market environment, starting with reinsurance. During the Japan-centric April renewals, reinsurance carriers continue to focus on increasing pricing and tightening terms and conditions across a wide range of territories and lines of business. June and July reinsurance renewals are dominated by U.S. Southeast property cat treaties, a couple of trends worth noting. The program renewal process started early, many times 30 to 60 days earlier for buyers. Many reinsurance -- many reinsurers have clearly defined their appetite and had a well-defined plan for June renewals. The combination of the early start and reinsurers not deviating from their appetites resulted in a very orderly renewal process at June 1, a trend that appears to be holding for the July 1 renewals. We also saw modest pressure on cedings to increase their own retentions while hire up in many program towers, there was more ILS capacity. Price increases were in the 25% to 40% range overall, and there was capacity available from most cedings. Broadly, there appears to be some signs of modest amounts of new capital entering the market, both traditional and alternative capital. With that said, we did see some capacity constraints in certain specialty classes and for reinsurers looking to secure property retrocession cover. These conditions are not indicative of any meaningful shift away from further property reinsurance, pricing increases in the intermediate future. Second quarter casualty renewal showed more stable supply and demand dynamics, resulting in pricing increases based on product or risk-specific factors, including loss history and program profitability. So overall, the market is similar to January renewals with most global reinsurance lines continuing to harden, not soften. These challenging reinsurance market conditions will continue to pressure pricing on the primary market into 2024. Shifting to London Specialty. Renewal premiums continue to rise across most lines of cover resulting from both rate and exposure increases. Inflation continues to act as a Florida premium increases, especially where insured values are climbing. Overall, I peg the premium increases somewhere in the mid- to high single-digit range. Many casualty classes and financial line renewal premiums are flattish to modestly higher. Public D&O risks are seeing premium decreases, however, professional indemnity and cyber renewal premiums continue to move higher, but not at the same levels we have seen in prior years. Energy-related renewal premium increases are in high single-digit to low double digits. Renewal premiums on aviation hold work continued to see significant rate increases. Underwriters are reassessing their pricing for the specialty class with the ongoing conflict in Sudan. U.S. cat-exposed property continues to harden with loss reaccounting rates up 20%. Insured with recent losses are seeing pricing up 50% or more. In an international pricing, property pricing is up in the 10% to 15% range. So overall, not much has changed from 7 weeks ago, increases continue, and it remains a very challenging market. You can hear our London specialty and reinsurance brokerage businesses continue to perform extremely well. For the second quarter, I see organic of these 2 operations somewhere in the low teens. Longer term, I really like with what we have dealt in our competitive positioning from our broad range of products, vast practice and coverage area experts, creative solutions and analytical tools, we have all the pieces to compete for any risk of any size anywhere in the world. Okay. I'll stop now and turn it over to Bill Ziebell, who is going to discuss our benefits brokerage and HR consulting operations known as Gallagher Benefit Services. Bill?

Thanks, Tom, and good morning, everyone. I'm Bill Ziebell, and I lead Gallagher Benefit Services, our Employee Benefits Brokerage and HR consulting business or GBS for short. My prepared remarks today will cover 4 topics. I'll first provide an overview of GBS and give you a sense of how the organization has evolved over the past decade. I'll then give you an update on our execution strategies, provide some comments on the recently completed Buck merger, and finally, I'll offer some early takeaways for the second quarter. Okay. So starting with an overview of the business. GBS began in the mid-70s, it was predominantly U.S. focused through most of its history. But over the past 10 to 15 years, began to expand internationally. In 2010, we entered the United Kingdom, followed by Canada 2 years later and 6 years ago, we established our operations in Australia. In conjunction with our international expansion, we also added a multinational consulting business to help employers with operations outside of our core geographies and have gained scale in many HR and Benefits products focused on emotional career and financial well-being. Over the past 10 years, we have tripled in size to more than $1.8 billion of run rate annualized revenue. Today, GBS is the fourth largest benefits broker in HR consultant in the world, with around 7,000 employees. The United States remains our largest geography and represents about 90% of our annual revenues generated from about 100 locations with the remaining 10%, predominantly the U.K., Canada and to a lesser extent, Australia. Our producers sell traditional group health insurance products, including medical, dental, vision and voluntary products that employers typically offer to their employees. We also advise on employer benefit plan design, financial projections of the plans and potential cost saving strategies. These products and services combined represent about 70% of our annual revenue. The remaining 30% of our annual revenue comes from HR and compensation consulting, executive life, retirement and other services that help employers address their human capital needs and organizational well-being. Our typical clients are middle market businesses, which we define as having somewhere between 100 and 5,000 employees. Most of the time, we are competing against smaller, local or regional benefit firms. However, we also serve many larger clients, providing a fresh alternative to some of our well-known competitors and also have a top-tier small group benefits business. Mike and Patrick talked about the retail property/casualty client value proposition, CORE360. GBS has a similar client-centric value proposition, we call Gallagher Better Works. Through Gallagher Better Works, our professionals explore and examine the most important initiatives and strategies that employers can utilize to attract, engage and retain talent, while simultaneously managing costs. From enhancing financial well-being, making investments in physical and emotional health to competitive compensation plans, our professionals explore a wide range of employee rewards and benefits. And the solutions we recommend are tailored to align with our clients' unique needs of their ongoing human capital strategy. The labor market remains very tight despite actions from the Fed, and most companies are competing for a limited pool of talent. There are 6.1 million people unemployed and looking for work in more than 10 million job openings in the U.S. Interestingly, the April rebound in job openings follows 2 consecutive monthly declines in February and March, so the competitive labor market isn't experiencing much reprieve. Our most recent Benefits benchmarking survey confirmed this dynamic as attracting and retaining talent was the top priority for most businesses, followed by cost containment. On the cost front, wage inflation is causing expense pressures for most organizations. So providing strategies to navigate rising employee wages is extremely valuable to most businesses. In terms of medical cost trends, we anticipate an acceleration in 2024 due to increased cost of services, incidence of higher dollar claims and the impact of cell and gene therapies and specialty medications. Carriers do foresee a hurting market in '24 and medical stop loss may be an increasingly important client solution to combat rising cost. So many different cross currents impacting the market. Our holistic approach to Gallagher Better Works positions us to help our clients attract new talent and drive costs out of their Benefit plans. Outside of the typical producer generated meetings are thematic webinars and thought leadership continue to drive engagement with our customers. Through the end of May, we had hosted nearly 25 different webinars covering topics like compliance updates, how to modernize retirement offerings, supporting mental and physical well-being to broader cost containment strategies. We also continue to have tremendous success with our Women and Leadership webinar series. This includes a diverse panel of female leaders touching on a variety of topics, including how to influence company culture to communication strategies. This series alone has already generated a meaningful number of leads and meeting requests from prospects. These interactive web-based events are in addition to the thought leadership that we are publishing on a regular basis. In 2023, we have released numerous reports focused on workforce planning, mental health awareness, DE&I and other organizational well-being themes across the globe. We are also tracking the growing number of technology-enabled solutions across the space. The team has created an easy-to-use system aimed at helping clients and our producers sort through and identify effective long-term point solutions that can favorably impact medical costs and improve the member experience. Leveraging the tracking system, we can more efficiently package traditional carrier programs with these one-off solutions better helping organizations meet their well-being goals. Based on the robust databases we maintain, we are able to present prospects, potential savings opportunities with limited data. And with current clients, we are using a number of different proprietary tools to identify savings opportunities or areas of investment based on employee location. We also use different compensation, benefits and retirement cost models to ensure companies are spending in these areas appropriately to attract, retain and motivate today's workforce. It's not always about spending more, but rather optimizing their spend. So we continue to separate and differentiate ourselves from the competition through regular engagement with our experts, our thought leadership, web-based discussions, harnessing data analytics and through the design and delivery of bespoke benefits and HR solutions. Turning to M&A. We too are a seasoned acquirer and are always searching for talented entrepreneurs to fit culturally and are looking to grow their operations. Over the previous 5 years, we have completed 50 mergers, including 8 tuck-ins during 2022 and our largest one to date, Buck in 2023. Tuck-in merger partners are typically drawn to GBS due to our global resources, innovative tools, specialized practice groups, niche experts, thought leadership and technology. We have a very nice pipeline of opportunities around the globe and believe 2023 will be another successful year for our merger strategy. I also want to spend a minute this morning talking about the early April acquisition of Buck, a leading provider of retirement, HR and employee benefits, consulting and administration services with about $280 million of estimated annualized revenue. Buck has a very complementary business profile focused on retirement services, particularly within defined benefits, whereas most of our retirement offerings pre-Buck were defined contribution focus. The addition of Buck also triples the size of our U.K. business and adds to our upper middle market and large account relationships. We believe we can leverage the Buck-client relationships and provide more value to clients through our wide range of health, welfare and HR consulting products. We are also excited about Buck's proprietary benefits administration and employee engagement platform known as B Suite. Over time, we believe we can adapt the B-suite platform to our middle-market clients, reducing complexity in the enrollment and ongoing management of employee benefits while increasing employee engagement for our clients. Needless to say, I'm extremely excited about the talent that has joined us, the tools and technology we can leverage and the opportunity to grow this business together. Shifting to some comments on April and May organic, starting with the U.S., which again represents about 90% of our annual revenues. About 80% of our annual domestic revenues relate to typical coverages you get via your paycheck from your employer, medical, dental, vision as well as voluntary insurance products. During the first 2 months of the quarter, we are seeing favorable customer retention, employee count trends as well as underlying program cost increases. Over the long term, more potential workers returning to the labor force and finding jobs as a positive for future revenue growth. Moving to the remaining 20% of our U.S. revenues. This includes our fee-for-service, individual products and retirement consulting businesses. Demand for our services and solutions is robust, given the limited number of workers versus open jobs. The complexity of today's hybrid work environment and increasing focus on overall employee well-being. It's driving employers of all sizes to engage with our fee-for-service and consulting practices as they prioritize bespoke strategies to retain, attract and motivate their workforce. Revenue wins from these businesses can be large and lumpy. It's really good business. It just doesn't occur as smooth and as predictable as many of our other lines. We've discussed before that we did have a very large life product sale in last year's second quarter, causing a difficult organic compare. But that should not cloud the fact that many of our practice groups continue to grow -- show nice growth in April and May. This includes our HR consulting, technology consulting and retirement practices. So even with the lumpy large life sale, we remain very encouraged by the activity and our pipeline of future opportunities remain strong. Shifting gears outside the U.S., which is about 10% of our total revenues. We are seeing very strong growth in the U.K. and Australia, while Canada has seen revenues a bit more flattish. So when I combine what we are seeing across the globe, second quarter organic is running about 2%, but controlling for lumpier life business would be about 5%. Looking out further, I believe we are very well positioned for continued growth. Over the last decade, we have solidified our platform as a place for industry-leading talent and added scale to our product portfolio within retirement, communications and executive benefits. To our Gallagher Better Works value proposition, we can truly help clients navigate their most pressing organizational well-being and human capital needs. We have the products, solutions and the people to do just that. I am very bullish on our future. Okay. 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 Gallagher Bassett, our third-party claims administration business. For those of you that are familiar with our financial reporting segments, it's our Risk Management segment. Today, my comments will cover 3 topics. I'll start by providing an overview of Gallagher Bassett or GB for short, then I'll give some insight into what we're seeing in the second quarter, and then I'll finish with a few comments on our long-term positioning. Gallagher Bassett was formed in 1962 by the Gallagher brothers and Sterling Bassett and has grown organically and through M&A. Over the past decade, GB has doubled in size, generating $1.1 billion of revenue during 2022 and today is one of the world's largest P&C third-party claims administrators. More than 80% of our revenue comes from our U.S. operations, with the remaining spread across Australia and to a lesser extent, Canada, New Zealand and the U.K. We have nearly 7,300 employees, most of whom work from home. We don't take underwriting risk, but rather adjust claims for clients. In 2022, we closed nearly 1 million claims and paid out more than $12 billion on behalf of our clients. That level of annual claims paid would make us one of the 10 largest P&C insurance companies in the U.S. More than 60% of our claims servicing revenue is from workers' compensation claims, another 30% or so from liability claims and less than 10% relates to property. Also important to note, we are not storm or catastrophe loss adjusters but rather focus on specialty and complex property claims business. These 3 services were nearly all of our business 10 years ago, but today, we also offer specialty products for various lines such as medical malpractice, environmental, professional liability, product liability and cyber. We're continually evaluating potential products and offerings and aim to offer best-in-class claims service for many of our clients' exposures. We segment our business by client type, and we have 4 types. First, large commercial clients, typically Fortune 500 businesses. These commercial clients have balance sheets that allow them to self-insure or have large deductible programs. So they take on a portion of their insurance risk and outsource the claims resolution process to Gallagher Bassett. This is our large -- largest and most mature client segment. The second type is public sector clients. This would include school districts, municipalities, data entities and federal governments. This segment includes our Australian state workers' compensation schemes. The third segment group captive or alternative market clients. These insurance entities utilize our services for their claims infrastructure. And our fourth client segment is insurance carriers that choose to outsource or white label a portion of their claim handling. This is our newest client segment. In the last decade, we've grown from very little revenue to about $250 million of revenue across 150 different carriers, both large and small. Clients choose GB because we deliver superior outcomes through a combination of deep expertise, outstanding service and solid execution. In certain cases, a superior outcome could mean the avoidance of loss as well as the mitigation of loss, more efficient medical delivery, faster return to work or higher employee satisfaction. We customize our services and organize our claim resolution managers around client type. For example, we don't have an adjuster for a large trucking firm working on a public sector slip and fall. Rather, our offerings can be highly customized to align with client expectations of what a best outcome might be, whether it's brand protection, ensuring customer loyalty or back to work sooner, we tailor our offerings to add more value for clients. And that level of customization, combined with our size, scale and technology is more and more attractive to insurance carriers. We believe about 90% of U.S. insurance industry claims are currently still handled by carriers. So there's a large potential market for this service. And with many carriers facing aging claim systems and recruitment challenges, outsourcing a portion of their claims handling can alleviate these challenges. Additionally, we've been discussing our carrier-runoff capabilities with insurance carriers more and more. This is where the carrier moves a large swath of legacy claims to our platform, which can result in better claim outcomes and reduced expenses for the carrier. We also recently introduced an industry-specific product, an integrated end-to-end construction offering that provide services across the full cycle of loss. We're providing loss prevention strategies, including safety training and awareness programs, cultivated specifically for the construction sector. Additionally, we can provide on-site safety professionals to monitor, manage and advise on workplace safety in real time. These services are on top of the more typical claim response, resolution and superior claim outcomes, that GB is able to deliver. We're seeing a lot of interest from prospects and are excited to expand into other industry verticals. Moving to mergers and acquisitions. We do see M&A as an attractive way to expand our offerings and expertise. With that said, the opportunity set of potential merger opportunities is much smaller than on the brokerage side as the TPA industry is more consolidated. We have a straightforward M&A strategy. We're looking for potential partners that can help us deliver enhanced outcomes for our clients. That could be through a new product offering, a new capability or by providing deeper expertise. Ultimately, we seek out highly specialized and complementary claim adjusting and risk consulting entities. Accordingly, M&A for GB tends to be less frequent than on the brokerage side. During 2022, we completed 1 merger, and we continue to work a pipeline of potential opportunities. Shifting to the second quarter of 2023. Let me walk you through what we're seeing through May. First, regarding new business, following an outstanding '22 that included a few new large client relationships in the carrier, large account and public entity space, we're seeing new business opportunities continue in '23. As clients respond to rising cost pressures, superior outcomes are even more important and early indications from leveraging our Gallagher Re relationships have been encouraging; second, client retention. It remains excellent for us, which is a reflection of the value we provide customers for our industry-leading tools from our mobile app GB Go to our managed care services, GB CARE to our award-winning RIMS platform, LUMINOS, and of course, our claims resolution managers who are driving superior outcomes; third, regarding core new claims arising. Through April and May, overall new claims arising across workers' comp, liability and property are modestly higher, and we are not hearing expectations of an impending economic slowdown from our clients. Putting it all together, we're seeing a fantastic second quarter organic, somewhere around 15% and adjusted EBITDAC margins a bit above 19%. We are having an excellent 2023 thus far and are well positioned for another stellar year. So the business continues to perform extremely well, capitalizing on what we have built over the past decade. From our award-winning RIMS platform, the expansion into additional specialty products, the addition of various claims services, technology-enabled tools and an efficient client-centric operation, today, I can confidently say, we are the provider of choice. Looking ahead, Gallagher Bassett remains very well positioned. We're investing from new claims resolution managers to tools that enhance our services, we're developing new services, as an example, exploring other potential-integrated industry solutions. We're expanding our offerings, broadening our specialty insurance capabilities to further align our services with new potential customers and client satisfaction remains at very high levels, thanks to our compassionate client service-focused culture. I'm very excited about both our near-term and long-term prospects. I'll stop now and turn it over to our CFO, Doug Howell. Doug?

Thanks, Scott, and hello, everyone. Today, I'll cover 4 topics. First, I'll do a recap of the organic revenue comments from each of our business leaders and boil it down to what it means for the second quarter and full year. The punchline here is we're a little more positive on organic for the second quarter and full year compared to what we were seeing 7 weeks ago during our first quarter earnings call. Next, I'll provide our most current thinking on '23 margins by quarter and full year. Again, the punchline is also a slightly more positive outlook on margin expansion versus 7 weeks ago; third, I'll give you some sound bites on our updated CFO commentary document that we posted on our website. Most items outside the impact of FX are in line with what we talked about 7 weeks ago. And I'll also provide a vignette to help you model quarterly organic revenues. We previously foreshadowed the lumpy life revenue in the second quarter '22, and also that we had a positive 606 revenue assumption update in fourth quarter '22. Both create difficult compares this year and FX is also causing some noise. So I think it's worth a few minutes today to give you what you need to reflect these items in your models. Also to a short vignette on margins and unpack the impact of Buck. And then I'll wrap up with my comments on cash, M&A and capital management. Okay, to the business unit organic revenue recap. Mike, Patrick and Tom had upbeat commentary on our global P/C retail, reinsurance and London specialty brokerage operations. Nearly everywhere, we're seeing strong new business production and excellent retention. They also conveyed that global renewal premium increases are running higher than what we were seeing in '22 and then also what we saw earlier in '23. They are also seeing higher net midterm policy endorsements so it feels like our global retail specialty and reinsurance units, second quarter organic could come in somewhere around 9% to 10%. Joel has anticipated another strong organic quarter 2 in our U.S. wholesale brokerage business. Program and binding combined are up high single digits, while open brokerage is showing fantastic organic. Again, in the mid-teens, Joel's RPS units combined are expecting second quarter organic growth of around 10%. Bill just walked you through our employee benefits and consulting business, he has also seen solid underlying growth in health and welfare and excellent growth in consulting. So putting all of their comments together, it feels like brokerage segment second quarter organic is running in that 8% to 8.5% range. Yet the reported headline organic will be in the 7% to 7.5% range because of a large life sale in Q2 '22 that creates a difficult compare. As we look forward by quarter, we're now seeing the headline quarterly brokerage organic as follows. First quarter, we reported about 9%. Second quarter we'll report 7% to 5% due to the life case sale in '22 compare. Third quarter is around 9%, fourth quarter headline would be around 7% or over 8% controlling for the Q4 '22 606 adjustment that we called out and discussed last year. If we post those results, it should get us to full year '23 organic in the upper half of the range of 7% to 9% that we have been providing 7 weeks ago, another terrific year. And also, just to clarify, these organic growth percentages exclude investment income growth. As for our Risk Management segment, you heard Scott say Q2 organic is shaping up to be around 15% and due to new business and higher claim volumes. And we expect full year organic to be approaching 13% as we begin to lap some of the bigger new business wins late in '22. Okay. Let me shift now to the Brokerage segment adjusted EBITDAC margins. 7 weeks ago, we forecasted in a 7% to 9% organic growth environment that we believe we can expand full year margins 60 to 80 basis points, excluding the impact of the Buck acquisition and 20 to 30 basis points, including the impact of the Buck acquisition, which naturally runs at lower margins. Today, given that we are a bit more optimistic in our full year '23 organic outlook, we are also a bit more optimistic about posting towards the higher end of those margin expansion expectations. Of course, by quarter the margin expansion will also be a little volatile due to the large life sale, the 606 adjustment and also the rolling impact of Buck. But let me provide some detail. Second quarter expansion of about 10 basis points on an FX-adjusted basis and 85 basis points of expansion without Buck. Third and fourth quarter, we are seeing average expansion of about 40 basis points each quarter on an FX-adjusted basis, and it would be about 110 basis points on average without Buck. That would get you back to the upper end of that 20 to 30 basis points of expansion for full year, including Buck or 60 to 80 basis points without Buck. Continue to post margin expansion means that over the last decade, we have improved margins by 1,100 basis points, upwards nearly 700 have come over the past 5 years. And we did that all the while continuing to make substantial discretionary investments the team has spoken about at length today, all the better our sales and service offering and client experience. Looking forward, we are confident we still have substantial productivity improvement opportunities. We believe these operational efficiencies will allow us to make further discretionary investments to favorably boost future organic growth and better our sales and service offerings, investments like you've heard over the last hour today, such as Gallagher Cement, e-commerce within RPS, unique cyber programs, Gallagher Drive and SmartMarket, insight-driven data and analytic tools for our customers, CORE360, Gallagher Better Works, and we're digitizing the customer experience. These are just a few that you heard a lot about it over the last hour. As for Risk Management segment margins, also a great story. You heard Scott say that we're expecting to deliver margins in the 19% to 19.5% range for the second quarter. And margins should also be around that level for full year. Scott is also continuing to make substantial investments in technology, product solutions and high-quality service enhancements that he just discussed. So now let's move to the CFO commentary document. Starting on Page 3. This shows you the usual Brokerage and Risk Management segment modeling helpers. A couple of items to consider as you update your models. First, 7 weeks ago, we included opening balance sheet, depreciation and amortization items for our April 3 closing of Buck in the numbers you saw back then. As we get more information, we continue to refine those numbers thus far, just a $2 million flip from -- between amortization to depreciation in our -- in those estimates. Clearly, a trivial amount against the $600 million opening balance sheet and both are not in cash. But it does unfavorably impact adjusted EPS about $0.01 a quarter so please consider such when you model adjusted non-GAAP EPS. Next, some comments on FX. We'll see a modest change to revenue versus our late April estimates as the dollar is weaker across most of our major currencies. While not much change, please don't forget to incorporate that FX impact into your revenue estimates. FX can create some noise. So here's a repeat of the vignette we did in March, but now I'll use our Brokerage segment, second quarter as an example. First, recast prior year revenues at current year FX rates. You'll see we're expecting a $20 million FX headwind to revenues during the second quarter. Accordingly, you should reduce second quarter of '22s commission and fee revenue by $20 million. So apply your organic pit to that recasted second quarter '22 revenue. As I said earlier in my comments, we're expecting headline organic to be between 7% and 7.5% in the second quarter given the tough life case compare. Third, and finally, you'll need to have in rollover revenues. You can find that from the table on Page 6 of the CFO commentary document. There's only a couple of weeks left in the quarter. So we don't expect that $146 million of rollover revenue that we show on Page 6 to move much before quarter end. As for the Risk Management segment revenue, you can follow the same steps, but note there isn't as much impact from rollover M&A revenues. Admittedly, doing similar steps when calculating the FX impact on our Q2 '22 EBITDAC is more difficult. That's mostly because of differences we have within some of our U.K. businesses where we have U.S. dollar revenues and pound expenses. So let me give you -- just give you the punchline. Using current FX rates, the FX adjusted Q2 '22 EBITDAC margin would have been around 31.7% versus the 32% we reported in last year's second quarter using FX rates back then. So please start with the FX adjusted second quarter '22 margin of 31.7% and then apply your pick for year-over-year margin expansion when you're computing your current period EBITDAC. Okay. Let's now flip to Page 4 and the Corporate segment outlook. Two comments here. First, small tweaks to our second quarter interest in banking and acquisition costs, given the strong merger activity over the last few weeks. And second, FX also causes -- also impacts our corporate line because of FX remeasurement gains or losses. It's a $5 million headwind at the end of May, that could change favorably or unfavorably over the next couple of weeks, but it's worth me flagging that for you now. Turn to Page 5. This page shows our tax credit carryforwards that mostly relate to our clean energy investments. There's no new news and the punchline remains the same. We have over $700 million of available tax credits as of March that created a nice cash flow sweetener for us over the next 4 to 5 years. That shows up in our cash flow statement rather than our P&L and gives us additional cash flows that we can use to fund future M&A. Next, let's move to Page 6, the M&A rollover revenue table already hit upon the $146 million of rollover revenues in the second quarter, so you can see that there. And then just one other modeling reminder as you think about future M&A. A reminder to read Note 1 on Page 3 of the CFO commentary document. Part of that note says, if you assume we buy more than our free cash flow, that we would need to borrow, so you would need to model an increased amount of interest expense to align with the estimated incremental borrowing. So let me finish up with my typical comments on cash, debt and M&A. At the end of May, available cash on hand was around $400 million. Our current cash position combined with strong expected cash flow and some modest incremental borrowing position as well for our pipeline of M&A opportunities. In total, we estimate towards $3 billion to fund potential M&A opportunities during '23 and should be more than that again in '24. So those are my prepared remarks. Sitting here today, we are more bullish on organic and margin expansion than just 7 weeks ago. Combine that with strong M&A pipeline, robust cash flow, we're well positioned for excellent growth and profitability here in '23 and beyond. Okay, operator, we're ready to move to Q&A.

[Operator Instructions] Our first question is from the line of Elyse Greenspan with Wells Fargo.

My first question, Doug and Pat, both of you guys mentioned, right, from an organic perspective that things feel better than just 7 weeks ago. Would you attribute that to property and the improvement there and the concentration in the Q2? Or do you think that, that's just a broad-based comment around just pricing and growth across all of your different business lines?

Well, listen, I can take that question. We're having a little bit of an audio feed problem with Pat. He's in London. I'm here in Chicago. So let me take that question for you, Elyse, that yes, across all of our lines, we're seeing strong uptick in our organic positions than we were seeing just 7 weeks ago. There is a -- you can read everything that we read too, but we're feeling it on the Street. Our daily overnights that we're getting as we get our data that comes in again every night, we see what the renewals are. It's across all lines, we're seeing increases. We have a little softness in the volume of maybe IPO, D&O, et cetera. But by and large, you're seeing it across the globe.

And then 1 question on the producer investment income side. From my understanding that Willis held on to some assets that was associated with some of the TSA arrangements and they were earning some fiduciary investment income on those assets and they were going to transfer to Gallagher on June 30. So is there a tailwind that you guys would have to fiduciary income investment as these assets transfer in the back half of the year? And can you help us think through that?

Yes. All right. Well, first of all, we've baked all of that into the guidance that we have provided in our estimates that we've given you, basically since the beginning of the year. We were targeted to have that convert over here on June 1. The team did an awesome job of getting that done and on time. And yes, it's given us nice uplift. Our numbers are somewhere maybe $5 million to $6 million a quarter of what that investment income would be, and that has been fully baked into the information I just provided to you.

Okay. And then you guys, within the reinsurance business, you guys had spoken with -- about a target of $1 billion of revenue for '24. I know you guys mentioned it was $900 million last year, right? And you're growing double digit organically this year, right? So that math will put you at the '24 target at the end of '23 or just about. So where do you guys see -- is there a new longer-term revenue target for the reinsurance business since it seems like there is pretty good line of sight to hitting the target you guys have laid out?

Yes, I'll tell you, the team is doing a terrific job on that. I think they're together, they're working hard. They're starting to feel some of the cross -- I don't want to say cross-sell, but across the divisional opportunities that are coming out on it. So we're just getting started. We're 1.5 years into it right now, and I think we're hitting our stride. I think that team has a terrific opportunity to continue to march towards doubling that business in 5 to 7 years.

Our next question is from the line of Mike Zaremski with BMO Capital Markets.

I guess my first question is going to be on Gallagher Bassett on the 15% organic outlook for -- in the near term. What -- a lot of good comments were made, but what's causing the uplift? Is it -- is some of it coming from just higher claims counts? Or is it coming in maybe some social inflation? Or is it coming from just other parts of GB not related to comp and liability and property claim costs?

Well, it's a new business. I mean, we've -- I've mentioned it a couple of times, we had a great 2022. A lot of that is continuing to incept here in the first couple of quarters. I mentioned we did have a few large wins both in the public sector, in the large commercial segment as well as in the carrier side. So it's predominantly new business. Our retention remains strong as well. And we are able to get price increases. Those are the drivers.

Got it. And Scott, while we have you, when we think about the Risk Management segment, we can kind of size up Gallagher's market share in total addressable market. In Gallagher Bassett, any color you can shed on how you see Gallagher Bassett's market share in total addressable market?

Well, I think the -- you have to take it by segment. I made a comment, if you take our carrier segment, the vast majority of claims are still handled directly by carriers. I mentioned that we've grown our business to $250 million but that is just a small, small portion of the potential there. And all of that has largely been in the U.S. So that's an untapped market outside the U.S. On the commercial side, with our large Risk Management clients, we've got a decent share in the U.S. I'd probably say more in the 10% -- 12%. So there's still a lot of headroom there as well. That business is something that we don't do much of in Australia. So there's a significant opportunity as we move into other markets. And then you -- our public entity business, we're a dominant player in Australia within the schemes. We're really starting to gain some traction here in the U.S. on that front. We have some large ones. And then in the fourth segment, captives and alternative markets. Once again, although we have a nice solid business there, I think the upside is significant. So in terms of market share, there's a lot of room, a lot of runway for us in all segments.

Okay. Great. And lastly, on the question, just pivoting to the centers of excellence. I heard Mike Pesch talk about more than 25% of employees in his segment -- in centers of excellence. Where does Gallagher see that proportion moving for the company over the coming, I don't know, 1, 2 -- 2, 3 years? Is this -- should we continue to expect that kind of arbitrage and that upwards benefit on, I guess, on the margins continued due to the centers of excellence?

Yes, Mike, this is Mike Pesch. I can tell you, actually, I'm headed to India on Monday. And the purpose of going there is to explore other ways that we could utilize our teams over there for various aspects of our business. And so I think there's opportunity across the entire enterprise as we look at the business, to give you an exact number, I think that there's opportunity within each division to further explore how they can better utilize the centers of excellence, similarly to how we do it here in the U.S. But it's really, for us, it's been not only an eye-opening experience in terms of how they are able to support our service teams here in the U.S., but we're also seeing how they can support our sales teams in terms of deal prep and data and analytics around a particular client or prospect. And don't forget, our teams in Gallagher Re had considerable amount of folks over there in India from an actuarial standpoint. So we're continuing to look at ways to leverage the expertise and capabilities in our service centers to further enhance our client experience.

Yes, maybe I'll pile on with Mike's comments. I think that as we look at further capabilities, we've had some really nice -- in the last couple of mergers that we've done with Gallagher Re and with Buck, high-level analytics work being done by those organizations that I think that we'll be able to borrow from and spread to our other units. Where do I think -- I think you're looking for where is the longer-term opportunity, it wouldn't surprise me in 5 more years. It kind of globally, we had 35% to 40% of our headcount would be in India at that time or other centers of excellence, too. It doesn't happen necessarily just be India.

Our next question is from the line of Greg Peters with Raymond James.

This is Sid on for Greg. Just a quick question on the M&A environment. I know in the prepared comments, you commented on the early signs of, I guess, a shift away from private equity, but acquisition multiples seem to be staying fairly consistent. So just curious on your perspective on what you believe it would take for multiples to come down or maybe some comments on what you view as sustaining the multiples.

Well, maybe when -- Pat, are you there? Can you hear me?

Yes, I can hear you.

All right, maybe you talk about the cultural things that we're seeing. And then maybe I'll get back to some of the M&A and why we look pretty good right now, and then maybe I'll talk to some of the numbers. You want to do that?

Sure. I think first of all, as we said, there's a little bit of a question mark, I think it's fair to say in the marketplace relative to where private equity is going, the size of some of the players and really just the financial model. I think Doug can do this better than anybody. If you take the -- and all of you on the phone are very capable of doing this, if you take the interest charges alone, in the private equity model, take it through the P&L all the way down to what's left as investable cash in the enterprise itself, there's a lot of money spent on the interest, of course, and in our model, there's a lot more money available for investment. Well, as that becomes even more stressed on the interest side, I think people are looking at, well, a, are we going to be able to compete long term? Are other people are going to sell into this model? And b, is it going to be something that is sustainable and I can get my money, that second bite on the apple out so it's not that there's not competition. I think when you talk about the multiples and Doug can get into the specifics, there's still pressure in terms of competition. And there's a lot of these private equity buyers that are very, very good operators. And so it's not a model that's going away. But I do think in a different interest rate environment, it gives us something more to talk about into maybe discuss the benefits as we believe that our model offers to the seller as opposed to somebody in a private transaction. So you can take it from there.

Yes, I think, listen, I think on a multiple standpoint, maybe 1.5 turns to 2 turns because I think might be the pressure that might -- the interest rates might be putting on it right now, which is meaningful. I think that's -- that will help. I think amplifying Pat's comments is Olson capabilities, resources, know-how, all the things that this team has talked about for the last hour, I think is starting to resonate more and more with people once they have a little bit of doubt in their mind about really what is going to happen with them in a PE world. At first, it was -- let's say, a few years ago, it might have been kind of hard to get that message across because of a smooth sailing that appeared on PE, I think they're more and more willing to listen that, hey, maybe these capabilities and resources are something they need sooner rather than later.

Our next question is from the line of David Motemaden with Evercore ISI.

I just had a follow-up on the better organic growth outlook. So Doug, it sounds like you see it across the board, but across lines. But I guess I'm just wondering just broadly, is the upgraded outlook driven by increases in pure rates you're seeing or exposure or share gains maybe a little bit more detail on that would be helpful.

Listen, I think that we've always been in the business of trying to help our clients mitigate the impact of rate increases. And obviously, as exposure units grow, that -- that's a little more difficult to mitigate. You got 100 trucks and now you go to 105 trucks, you got to insure the other 5 trucks. The rate on that, we've been pretty creative over the years to be able to take deductibles out, maybe bring some caps down, maybe look at some self-insurance on that. When you get into the third and fourth year of rate increases, it's a little more difficult to be as successful in our creativity on that to mitigate some of those rate increases. But I think that what you're seeing when you look at the Fed's report yesterday, is that they're just not seeing the slowdown in the economy. We're not seeing it in our dailies. Our midterm cancellations and endorsements and audits and policy changes are all still a net positive and growing. So I'm just -- we're just not seeing the underlying pressure in the economy, which probably causes us to be a little bit more optimistic as we look at our organic growth. So all the things that you're reading, we're seeing -- there's not a disagreement out there. I don't -- I think the carriers realize that there's still exposure on their pricing. Exposure units are going up. Rates are going up. And so -- and we are winning more than we're losing. So I think they're seeing a difference. When you sit down to talk to a customer and their rates are going backwards, it's pretty hard to show how analytics and data make a difference. But when the rates are going up, it sure makes a heck of a difference when you're out there in the field showing them how they can be creative. So I'd say it's across the board on it, David.

Got it. That's helpful. And then maybe just following up. It sounds like the overnights in the dailies are still looking pretty robust. I'm just wondering, historically, has there been a lag between what you're seeing in those indicators and between when the economy -- when there's changes in the economy either -- in either direction?

They're pretty real time. I mean, people have to cut workforce, they got to cut their heads. If they've got to sell off a bunch of trucks or park them, we see that -- we see it real time. So I would say that several of those metrics without spending a lot of time to think about it, they're pretty real time on what's going on out there.

Got it. Okay. That's helpful. And then maybe just switching gears to the change in the cash flow disclosure that you guys just made. If I look at the free cash flow in the first quarter was pretty strong, it was around $400 million. Were there any sort of one-off items helping that? It's not a metric we focused on historically, given the fiduciary noise, but just wondering if you could just help us there.

No. The only thing that to be a little careful about is that the -- when you look at like '22, that was the end of our clean energy era. So there are cash flows related to clean energy in the past that I think that at one point, we were spending more cash and then we're getting the benefit from our credit line. So at that point, clean energy might have been a cash drag. So that would be the only thing. But really, when I look at the 3 months into '23 versus the 3 months into '22, I wouldn't say there is a big impact from that maybe when you look at full year '21 versus full year '22, you would see that because remember, those -- we -- those plants shut down at the end of '21 at the sunset of the tax credit program. But by and large, pretty clean.

Our next question is from the line of Mark Hughes with Truist Securities.

I had a question on medical inflation. Bill Ziebell mentioned that you expected acceleration in 2024 and gave some reasons why. I wonder if how you look at that from a Gallagher Bassett perspective, whether that's going to be meaningful in terms of workers' comp costs and your potential to drive revenue based on that, but just interested in whether you think that will impact the comp.

I mean it's definitely impacting the cost -- the loss cost for our clients. That doesn't translate directly into revenue for us, Mark. I mean, it's -- so I don't see any immediate impact to our topline. But it's definitely -- when I talk about superior outcomes, programs that we're putting in place, a lot of things we're doing here in the U.S. around our GB CARE services, our managed care services are all focused on trying to figure out how to assist our clients to manage that to the proper amount and to extend possible mitigate the upward pressure on that.

Yes, Mark, one of the things just on -- go ahead.

I was just kind of say have you seen any changes in that rate of inflation lately and CPI was picking up a little bit in medical, maybe it's supposedly come down on this most recent report. Just curious if you're seeing any acceleration or deceleration?

And I think Bill is saying the same thing. The 1 place we are seeing is on the pharma side. There has been a recent uptick there. I think on the general medical side, the rate is probably more similar, but we are noticing a meaningful uptick here this year alone as it relates to pharma.

This is Bill. There's definitely pressures at the hospital system, the provider level. Some of these are under long-term contracts with the insurance carriers. And as those contracts come up, you'll start seeing that creep up again. A lot of these are going to be pushed into the back half of this year and going into '24. We're getting a lot of signals from the markets that we're seeing a hardening, if you will, in the stop loss side for self-funded medical plans. But some of these drivers aren't going away such as these very expensive therapies that are coming out of the market. And those are the things that are really driving up the cause of large -- of excessive claims and that's why the stop loss is hardening and you're going to see this stuff creeping into the market in the coming quarters.

And then, Joel, in wholesale, Joel still on the line -- you talked about the overall organic or overall renewal premiums, 13%, similar to last quarter. How are you seeing general liability? You mentioned the property. I think the property increases weren't as much as what you had mentioned in this call in March. Are you seeing acceleration in any other line that's noteworthy?

Yes, they probably -- the only really lines that we're seeing any softening in -- everybody's talked about is the D&O and I think you've seen some of the information on cyber results have caused people to come back into cyber, be more competitive. It's still predominantly an E&S line. So that's great. General liability, of course, that's a huge industry, and it really depends risk by risk, by risk. We are still seeing increases in general liability and overall. But where we've continued to see increases in that line is really the excess and the umbrella. Again, people not deploying large limits, more carriers -- taking more carriers to the together large towers. And then, of course, the driver on that is a big concern over social inflation. People are starting to really look at that closely that you've seen a lot of the verdicts that have come in have been substantial. I think that will continue to drive that marketplace at least through the rest of this year and then into '24.

Yes, Mark, just...

Anything.

Just keep some of these things in perspective on it, too, is that we talk about D&O, but it's a pretty small line of business for us on a quarter-to-quarter basis. So even though we're looking at -- but if I look across property, general liability, umbrella, package, we're seeing rates still pushing double digits on in RPS business. So D&O, yes, it might be flat in the first quarter. I think it was like 3% up. And in the first quarter, we did maybe a couple of million dollars with the D&O premiums. So just make sure you keep that in perspective on it.

Yes. And then finally, construction, anything on the construction industry front, the end markets, any slowdown in activity there?

You're seeing a lot of projects still out there. The starts are really the one thing that maybe has put pause on certain projects, and then a lot of the big infrastructure and a lot of the big stadium work and all kinds of big projects are still out there.

Yes. This is Mike Pesch. I would just echo that. When I look at our new business wins, and I report out on them every Sunday, a significant amount of builders' risk and OSP-type work, now that work starts depending upon when they get funding for those projects. So there's a delayed effect into when that hits our P&L for the work that we're doing, but it certainly seems very active. And like Joel said, there's -- it seems like everybody is building a new stadium these days, and we're one of the best in that business. So it's definitely -- I'm fairly bullish on construction through the balance of the year.

Our next question is from the line of Paul Newsome with Piper Sandler.

Couple of kind of private equity related question. What was -- we've talked a lot about how higher interest rates could affect their relative competition in deals. But any thoughts on whether or not the higher interest rates would actually affect the actual level of business competition from those folks? Or even anybody else in the business? Or is it just pretty much a business you think that other than M&A is interest rate-neutral?

I don't know if I really understood the question. Just say it to me 1 more time again. Are you asking if this drives up appetite for deals? Or does it just influence the multiple paid for deals?

No, I'm thinking about not deals. I mean we have a lot of these roll-up private equity folks trying to be Gallaghers and presumably, they're an important part of your competition. I'm just curious if you think that there's any impact from a competitive perspective on the day-to-day business from the changes that we're seeing in interest rates for those types of companies.

Sure. The more interest you pay, the less you can invest. I mean it's a cash flow business, right? So yes, of course, we're pretty prideful about how much we're continuing to reinvest in the business. Every year, hundreds of millions of dollars is going into better our platform, to create innovative solutions for our customers. And I think the more you pay an interest unless you have to reinvest.

This is Mike Pesch. The only thing I would add to that is, don't forget, a lot of the messaging around some of the purchases that those folks made over the years was that nothing was going to change. So when you talk about not only being able to not invest maybe back into the business, but also the cultural impact of making those changes, whether it's operating systems that will ultimately enable you to harvest data and analytics for your clients, that's a big lift. We did it over a 10-plus year period. And if they are trying to resemble what we've done that takes time, investment and a cultural shift.

And then somewhat relatedly, not talking about M&A itself. For you folks, how much does the interest rate change had an impact on the math for what you are willing to pay? Or is most of the deals that you're doing more sort of whatever the market will bear/what you think the culture is in terms of what you actually pay for the deal that you're doing today?

Yes, I don't think there's a direct correlation there. If there's somebody that we really think is the right fit inside of Gallagher, I think that the interest rate does influence that. But when you look at our expected returns, it doesn't impact it that much. The fact is we just don't borrow that much against them. We're using our cash flows there. So the amount of borrowing that we do on each deal doesn't really impact our outlook on that.

The next question is coming from the line of Yaron Kinar with Jefferies.

A couple of questions and then maybe 1 clarification on modeling comp. So first, I think you said that in wholesale, you're not seeing any increase in limits offered. Is that also true in retail, both in the U.S. and internationally?

In terms of capacity for our clients and the limits that we can get in the marketplace, is that your question?

No, I would actually say like in terms of actual limits offered by layer, like if -- I think a few years ago, we saw a pullback from, call it, $20 million down to $10 million or $5 million and limits offered by market or by carrier, are you starting to see those increase now?

I think the jury is still out on that. When we were at RIMS in Atlanta, we had a lot of meetings with clients and prospective clients and 1 client in particular, a prospective client in particular, told a story that just 10 years ago, they had about 12 companies on their $450 million tower. And now they have 35 carriers on their tower and didn't see any light at the end of that tunnel. So certainly, you have examples where there's still going to be a lot of players to get to the kind of limit that some of our clients and prospective clients want or need. Yes, there's certainly opportunity upon renewal if the account is clean, and it's in an industry that the underwriters understand and want to be a bigger player in for us to increase the amount of limit on 1 single -- from 1 single carrier to get to the tower that they are trying to build.

And are there lines of business where you're seeing this occur more?

Well, I mean, certainly, in the excess layers from a liability perspective, Joel talked about the social inflation aspects of it. And so putting your limit out when there is the uncertainty of the court system and what could potentially happen in the event of a difficult claim that challenges sometimes the ability for us to go out and get a significant amount of limit for any 1 particular account. But -- the -- I would say, overall, it's infrequent when we cannot fill the expectations for our client in terms of what kind of limit they want to procure.

Got it. And then my second question, I feel like any time we turn the TV on or open the paper these days, there's something about generative AI. I realize it's also very early days, but can you maybe talk about what you're seeing there, what the opportunities are, maybe where you're testing it and what the kind of -- what your early learnings are there?

Yes. Well, this is Mike Pesch. I would just say, from my perspective, one of the areas that we've utilized it is we put out a lot of content. I spoke of it in my prepared remarks and our niche practice leaders put industry-focused white papers and put webinars together. And oftentimes, we'll leverage AI to generate a portion of the content and then fact check it against our experts. So it gives us more speed to get to market for content that we want to put out. But again, a lot of that information that you find through things like ChatGPT and so forth, certainly need to be fact-checked, certainly need to be audit to make sure they're in line with what we see in reality, but it does give us a bit of speed to market when we utilize those tools.

Got it. And then, Doug, just 1 clarification point on modeling, if I may. I think you said that the $5 million of quarterly fiduciary income uplift from the transfer of fiduciary assets from Willis are already baked into guidance. Where is that? Is it in the margin guidance? I don't think it's inorganic, right?

We do not include investment income in our organic calculations. I think there might be 1 or 2 other brokers that do include that. We do not. We do allow it to hit it to fall into our margin guidance. So what we've given you really all year has had an assumption in there for this cutover on June 1 of us having -- being on a separate instance of the software system, which gives us the invested assets or the cash assets that we can invest. So that's already been baked into our margin outlook throughout the year.

Our next question is from the line of Meyer Shields with KBW.

I have 3, I think, really quick questions. First, for Tom Gallagher. It sounds like midyear reinsurance renewals for a lot more orderly than at January 1. And I'm wondering, was the business that was not really placed at 1/1 because the market was less smooth? Does that come back midyear? Or does that come back 1/1 of 2024?

No. I think the business at the end of the year, ultimately, the vast majority of it got placed so it hasn't disappeared from the marketplace. People got what they want. It just was incredibly delayed. And so when you take a look at the rest of the year, and for the most part, we're seeing a very orderly process. We saw, as they said [ 1.4 ], we're experiencing it at [ 1.7 ]. And so we don't see a significant change in the momentum of the market at this point in time.

Okay. That's helpful. And then a question for Doug. If access to the Gallagher Resources accelerates Buck's organic growth in 2024, is that good or bad for bottom-line margins?

Well, listen, I think that when you talk about incremental margins on incremental growth for Buck, I think it would come in pretty consistent with our overall margin because that incremental amount is bigger than what they're currently running at. So I would say it probably will neither hurt nor dramatically help next year's margins.

Okay. Fantastic. And then maybe a bigger-picture question for Pat. I mean we've talked for a long time about how Gallagher competes overwhelmingly with smaller brokers. And I was hoping you could update us on your win rates when you're competing against the bigger brokers out there. How is that trending?

Well, I'll pass that back to Mike and to Patrick for their view but I wouldn't say that our win rate is increasing substantially. What I will say is this, and Mike, if I get this wrong, please jump in. But our win rate on larger accounts, in general, is increasing nicely. But you take the Fortune 1000, there's 1,000 of them. They know Marsh, they know -- and they know Gallagher, they know locked in, they know how, they know all of us. And we compete back and forth. We get our share. It's not a matter of market share really jumping or growing. But I think as you look across below that, we continue to inch up and Mike, if I got that wrong, go ahead and correct me. But I think that really, it's pretty kind of steady state in our normal competition with our 2 bigger competitors.

Yes. Pat, you're spot on. When we look at -- we track every month our wins in terms of size of account. And it now is 54% of all of our wins generate over $100,000 in income to us and about 32% are over $250,000. So what does that tell you? It tells you that when we compete on bigger accounts when we solve problems, we win. And oftentimes, those bigger accounts are with Marsh and Willis and some of our larger competitors. So to answer your question, yes, we compete very well against them. I think what is occurring now more than ever, and I saw it firsthand at the RIMS conference is that we are expected to be at the table. We have an audience with some of that -- those accounts that maybe in the past we wouldn't have had because they want options, they need options. They're exploring us as an option, and we have a team that can solve all of their problems. And we're one of the only broke -- we are the only broker out there that has all legs of the stool from a Risk Management perspective when you factor in reinsurance, third-party administration, wholesale and retail and then alternative risk and captive information. So we offer a pretty compelling argument to demand a seat at the table.

Our last question comes from the line of Charles Lederer with Citi.

So Mike Pesch and Joel Cavaness has both touched a little bit on the challenging conditions in personal lines. I understand it's not a big part of Gallagher's business but with all the noise in the press recently in homeowners, wondering how you see that dynamic evolving for those businesses and the marketplaces they sit in.

Yes. Charlie, look, while percentage-wise of our revenues, it may not be as significant as other industries, but it's important to us, both in standard personal lines and high net worth and private client. And those folks are having a very difficult time. So we've beefed up our investments in personnel and our value proposition just today, while we were on this call, there was an article in -- published in Florida that 2 more carriers have decided to scale back or pull out that is 16 carriers that have jumped out of that marketplace in the last 18 months. So when you look at where people are moving to and also where some of the high-priced homes and the needs for Risk Management are located. They're located in areas where there are -- there tends to be trouble. And so it's an important business for us. It's a business that we want to continue to invest in, but it's certainly not getting any easier given the fact that there are capacity constraints and willingness to participate in many of those states. And I think, Joel, you see that same thing from a wholesale perspective.

Yes. We're -- obviously, a lot of personal lines trending towards the E&S market because of the freedom of rate and form. You obviously have followed the fact that nationwide is suspending new business in California and a couple of other states as well as all state, others -- that's having a big impact on the E&S side and it's driving a lot of business back to us. We made a great merger this past quarter with operation and MGA that specializes in low-value dwelling in the state of Texas. So we're leaning into the personal line space, and we believe that it will continue to accelerate even faster than it is today. If you own a home in Florida, you own a home in Louisiana, it's a tough go out there for folks. And the market is extremely tight and extremely limited.

Just as a follow-up, I guess, just going back to the question on generative AI. Is that something that clients and carriers are talking to you guys about, too, maybe from a risk perspective? And what are the conversations like there if they are taking place?

Charlie, this is Mike again. I think we meet with our top trading partners on a very regular basis. Everyone is kind of in the same boat that we are. And they're all exploring it very carefully because they don't certainly don't want proprietary information out there in the Ethisphere. So we've got to make sure we do it in a very careful environment. Our CIO is very in tune with what's happening. So we're exploring every different aspect of it, where it can be helpful, both from an efficiency perspective but also a client experience perspective.

I think that's all the questions. Am I right?

Yes, that's right, Pat.

Well, thank you, everybody, for joining us this morning. We really appreciate it. I think you could tell from my vantage point that the business really is in excellent shape. And of course, we believe we've got the most talented colleagues in this business. We've got outstanding carrier relationships, and we literally an unwavering focus on providing clients the very best insurance and Risk Management solutions. There's no question I'm excited about our near-term and our long-term prospects, which I think just gets stronger and stronger every single quarter. So we'll be speaking with you again during the second quarter earnings call at the end of July. Thanks again for being with us this morning, and we'll talk to you then.

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