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

Good afternoon, and welcome to Arthur J. Gallagher & Company's quarterly investor meeting with management. [Operator Instructions] Today's call is being recorded. [Operator Instructions] 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.

Thank you. Good afternoon, everyone, and thanks for joining our quarterly Investor Day. These regular meetings provide you the opportunity to learn more about the Gallagher story, hear from our various business leaders, and dive deeper into each of our operations. It also allows us time to give some more recent industry data points and an update on our company's business performance outside of the hectic earnings season. So let me walk you through the format for today's meeting. I'll begin with some prepared remarks on how Gallagher is positioned today and our strategy, cover current insurance market conditions and provide some high-level expectations for the full year. Then our business leaders will each speak for 5 to 7 minutes, providing background information on their businesses, insights into their respective markets and cover relevant growth and operating initiatives. Our leaders will also give you some indications on how the third 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 around an hour. After that, we'll open up the line to the group dialed-in for questions and answers. Let me start by saying how excited I am about what we continue to build at Gallagher. The business is in great shape with an excellent growth outlook and fantastic profitability profile. We have exceptional talent, unmatched expertise across our niche practice groups and global reach. I believe the business has never been in a better position to compete and to win. We are a global insurance brokerage, consulting and risk management powerhouse. We operate in more than 60 countries, have client capabilities in approximately 70 additional countries and have nearly 50,000 employees providing the very best insurance and risk management solutions and service to our clients. And our growth opportunity from here is immense. There is some $7 trillion of P/C and life insurance premiums globally. And these premiums are growing annually through economic expansion, price increases, emerging risks and new products. And you need insurance for everything, driving a car, operating restaurants, shipping goods, sending satellites to space. Insurance is the oxygen of commerce. So we will grow both through taking market share as well as alongside the global economy. Our strategy is simple. We are trying to do 4 things: #1, grow organically; #2, growth through mergers and acquisitions; #3, increase our productivity, raise our quality; and four, to promote and maintain our culture. Starting with organic growth. As I mentioned before, the industry by its nature is a growth industry, already at $7 trillion of insurance premium globally. Just growing 1% would suggest $70 billion of new premium every year. The equivalent to the annual premium of some of the largest insurance carriers in the world. At the same time, we are focused on winning more business and adding new clients to take market share. Today, the top brokers combined don't have significant market share. So there's an opportunity every day to win. As you'll hear the team talk about today, we can differentiate ourselves through our niche practice groups, insights from Gallagher Drive, SmartMarket, unique advantage and EDGE products and superior carrier relationships. There's also tremendous opportunity to grow through mergers and acquisitions. There are upwards of 30,000 agencies and brokerage firms in the U.S. alone and even more globally. With the vast majority of them on the smaller side, say, below $25 million of annual revenues. And this substantial fragmentation across the globe allows us to focus on tuck-in acquisitions where 1 plus 1 can equal 4, 5 or even 6. That's because we can provide these insurance entrepreneurs access to expertise, products, data and analytics, and our centers of excellence, all of which allows them to sell more. They too can see the long-term upside in joining forces with Gallagher. Moving to productivity and quality. As I mentioned before, we are already operating at attractive margins, but we believe we can always get better, faster and smarter. We've invested heavily in common systems, which has allowed us to better harness the incredible amount of data we have. Today, we can use our data to provide timely insights into various operating trends, help build new products for our clients, optimize carrier supply and client demand through SmartMarket and provide our clients and prospects, analytics and comparison tools through our Gallagher Drive platform. And we continue to leverage the offshore centers of excellence, embracing digital interaction with clients and carriers, and look for ways to automate aspects of our business. All that said, our biggest competitive advantage is our bedrock culture. It's a sales and service-oriented culture focused on what's best for clients day in and day out. And we have fun doing that. We're a great place to work. So I remain very bullish about our future and truly believe we are just getting started. Moving to an overview of the market. First, we continue to see renewal premium increases across nearly every line globally. So no real change to the firm to hardish market conditions we've been talking about for quite some time. There are differences by line of coverage and by geography, but in total renewal premium increases so far in the third quarter are similar to the second quarter. 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. And within Gallagher Bassett, core workers' compensation and general liability claim counts, which are typically tied to business activity, continue to grow year-over-year. Third, even with the August uptick in the U.S. unemployment rate, there continues to be a significant labor market imbalance, which is a favorable backdrop for our Benefits business. There's still nearly 1.5 job openings for each unemployed person looking for work. So I see demand for our Benefits products and services remaining quite strong. Before shifting to the insurance pricing environment, a couple of comments on some notable industry topics this quarter. First, third quarter natural catastrophe activity. While the quarter is not over, right now, losses appear to be mostly impacting the primary insurance carrier market. We don't expect much impact on retail P/C contingents. However, you'll hear Joel say the Hawaii wildfires will have about a $2 million to $4 million impact on our contingents in RPS. Second, there has been a lot of press on letters of credit related to Vesttoo. Doug will tell you that very, very few of our clients used Vesttoo for their reinsurance collateral so it doesn't look like an issue for us. Shifting to the insurance pricing environment, starting with the primary P/C insurance market. Through the first 2 months of the third quarter, renewal premiums, that's both rate and exposure combined, are up 11%. As I mentioned, that is similar to second quarter and higher than the 8% to 10% renewal premium change we have been reporting throughout '22 and early '23. Most of our major geographies are showing consistent renewal premium increases relative to the second quarter. Overall, it's still a tough environment for our insurance risk-bearing partners. They are grappling with stubbornly high loss cost inflation and more catastrophe losses at higher reinsurance attachment points. So when I roll it all together, we are not 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 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 I spoke about, we expect strong demand for our consulting services and benefit solutions through the remainder of '23 and into '24. Increasing global renewal premiums, rising severity, growing claim counts and a resilient economic backdrop, these are ideal conditions for robust revenue growth. So as we sit here today, it looks like full year '23 Brokerage organic growth is likely to be pushing 9%. Doug will provide some more color about third and fourth quarter regardless, it's looking like another year of excellent organic growth. As for Risk Management segment, we're seeing full year organic around 15%. Doug will give you some quarterly breakdowns on that too. That level of organic in both of our core businesses would be fantastic. Moving to some comments on mergers and acquisitions. Our strategy is to find and acquire entrepreneurial owners looking to grow and to 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, branch managers and regional leaders, all help identify potential merger partners. We continue to see early signs of sellers shifting away from private equity. That said, there remains ample competition. Over time, I believe we will get more opportunities by well-run, growing merger partners. When I look at our tuck-in merger and acquisition pipeline today, we have about 55 term sheets signed or being prepared, representing more than $700 million of annualized revenues. Good firms always have a choice of who to partner with, and we will be very excited that they choose to join Gallagher. So let me give you some quick sound bites on what you'll hear from the team today. Mike Pesch will tell you our U.S. Retail P/C business is performing well. Our net new business spread is a bit better than last year. Renewal premium changes are in the double digits, and midterm policy adjustments continue to be up year-over-year. Patrick Gallagher will tell you our non-US P/C operations are performing exceedingly well. New business production is similar or better than last year's level. Retention remains excellent, and renewal premium increases are approaching double digits overall. Then Joel Cavaness will tell you his wholesale brokerage businesses are expecting another strong quarter of financial performance. Open brokerage renewal premium increases are in the teens again, while 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. Third quarter organic growth is expected to remain strong in the double digits. 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 strong and demand for our consulting practices remains excellent. Scott Hudson will tell you our third-party claims administration business, Gallagher Bassett, is expecting another fantastic organic quarter due to new business wins, 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 third quarter and full year '23 results. I'll stop now and turn it over to Mike Pesch, who's going to discuss our U.S. Retail P/C brokerage operations. Over to you, Mike.

Thanks, Pat, and good afternoon, everyone. I'm Mike Pesch, and I lead our U.S. Retail Property and Casualty Brokerage business. My prepared remarks this morning -- this afternoon 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 third 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 our employees are based out of our centers of excellence, a significant increase relative to 10 years ago, giving us an incredibly strong and scalable platform for future growth. Our U.S. Retail business serves clients of all sizes. However, we have always been more concentrated in the middle to upper middle market. These 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 nice small commercial affinity and personal lines customer base, including high net worth clients. You 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 have more complex insurance needs. So they rely on our experts to identify, evaluate and help them manage risk on their behalf, and, of course, 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. 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. Our 30 niches are different product and industry verticals where we have subject matter experts with specialized knowledge and deep insights. Leveraging these package groups, we better understand the unique risk characteristics of different businesses and can tailor products and 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. We believe this tailored approach to risk management and insurance procurement is a competitive advantage. I should also highlight our National Risk Control Group. We have more than 300 professionals working with clients to develop safety protocols and risk management programs, while also assisting in claims resolution and advocating on behalf of our clients. Our industry experts through thought leadership, online tools and web-based industry discussions continue to generate new client leads and revenue opportunities. Through August, we have hosted nearly 90 webinars this year. This includes our National Risk Control webinars and CORE360 insight series on topics such as property risk strategies, ESG and climate resilience. And we are adding valuable content to our website all the time, including our CORE360 Flashcast. These condensed webinars explore many industry-related topics, such as emerging cyber threats, safe driving essentials and promoting a positive workplace. And these learnings can be accessed 24 hours a day, 7 days a week, allowing our clients and prospects to tap into our network of experts at their convenience. Additionally, any time a client or prospect engages with any of the online content, our producers are notified. Moving to technology. On top of many enhancements to Gallagher Drive and SmartMarket, 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 initiatives within U.S. Retail. And don't forget, we are competing 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 long-term successful track record of tuck-in M&A. Typically, we are targeting firms generating less than $10 million of annualized revenue. They share our company values around client service and ethics and want to grow their business. Entrepreneurs that want to be with Gallagher for the long term and are already operating at attractive margins. Many of our merger partners are the results -- a result of relationships formed at the local level and have been developed over time. So we know these owners very well, have seen how they compete, and have a good understanding of their culture. Last year, we completed 14 mergers, and through August, we have completed 15 more. Looking forward, we have a strong pipeline of opportunities across the country. So '23 is likely to be another fantastic year on the merger front. Moving on to my second topic, U.S. retail insurance pricing. Not much has changed in the past 7 weeks. And overall, our customers continue to experience renewal premium increases. For many of our customers, this is the third or fourth year in a row of increased premiums across most lines of business. So far in the third quarter, renewal premium changes, that's both rate and exposure combined, are up about 11%, with around 3/4 of the businesses seeing year-over-year increases. An important note, while 11% is down a couple of points from second quarter, that's mostly due to mix, there is less property business renewing in the third quarter versus the second, and 11% is well above first quarter '23 and full year '22 levels. Let me give you some flavor by line of business. Property up 26%; general liability and umbrella, up 7% to 10%; workers' compensation is flat to up low single digits, cyber is flattish, while D&O is seeing year-over-year declines around 10%. Personal lines, including our private client practice, are seeing renewal premium increases in the low teens, and carriers are reducing capacity in certain geographies. So these are very tough market conditions and will continue. Despite the widespread in renewal premium increases, they do vary by client loss experience. We continue to see more good accounts get some premium relief in certain lines. However, accounts with poor experience are seeing greater increases. To us, carriers are behaving very rationally as they measure their expected returns on a line-by-line basis. Looking ahead, we see these challenging market conditions for clients continuing as because there doesn't appear to be any reprieve in loss cost trend, economic inflation and social inflation. Additionally, there have already been a couple of hurricanes to make U.S. landfall and that's on top of elevated year-to-date losses from secondary perils, including wildfires and convective storms, all of these are having an impact on the primary insurance market. Remember, though, our job as brokers is to help our clients find appropriate coverage. That aligns with their risk challenges while mitigated price -- mitigating price increases to ensure their risk management programs fit their budgets. And I believe we have the best team in the industry. Finally, I'll conclude with some thoughts on what we are seeing so far in the third quarter. Through the first 2 months, we are seeing double-digit renewal premium increases, net new business spread better than 2022 levels, a small headwind from less nonrecurring business 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 third quarter organic will be somewhere around 9%. So our client-first team-driven culture, combined with data-driven insights, timely thought leadership and a leading group of niche experts, 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 afternoon, everyone. This is Patrick Gallagher, and I lead our Americas Retail Property/Casualty Brokerage business. Mike covered the U.S. So 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, that's our Retail P&C units in the U.K., Australia and New Zealand. It makes sense to group all these geographies together because they share many of the same initiatives. And frankly so much of what we have done in the U.S. has been translated and adopted by our Retail P/C units around the world. So today, I plan to touch on 3 topics: first, I'll dimension our international businesses and provide some comments on each of our main geographies; second, I'll discuss the P&C pricing environment outside the U.S.; and then I'll finish up with some comments on what we are seeing thus far in the third quarter. Starting with a high-level overview of our international retail business. We finished 2022 with more than $1.5 billion in revenues, more than $8 billion of premium on behalf of our clients. We operate in about 60 countries globally and have client capabilities in around 130 countries, with our largest operations in the U.K., Canada, Australia and New Zealand. Today, our international business is very different than it was 10 years ago. We just weren't geographically diverse. Most of the $150 million of international revenues a decade ago were from the U.K., with a small portion tied to 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. It's worth noting that none of those countries were using our U.S. operating playbook to any meaningful extent. That's a far cry from where our business stands today. In fact, each of our major international platforms have significant scale. For example, we are a top 5 U.K. retail broker and generate more than $600 million of annual revenue across 75 offices. 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 a leading retail broker, while in Australia, we are a top 5 broker. Taken together, these 2 countries generate around $500 million of revenue annually across nearly 100 different locations. Importantly, 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, a dramatic 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. We also serve a wide range of large account business, smaller enterprises and high net worth personal lines. By design, our international sales techniques and tools near the U.S. And what is exciting, too, is that new ideas and thinking from around the world are coming back to help us get better in the U.S., too. For example, our U.S. small business strategy mimics our approach from Australia and New Zealand and the U.K. Let me give you some examples of how our U.S. strategies are shaping our international operations. First, CORE360. While we introduced CORE360 7 years ago as our U.S. go-to-market strategy, it is now part of our global retail value proposition. It's the foundation of our risk management discussions with clients and prospects. Second, our niches. Many of these practice groups are organized and utilized at a global level, including energy, real estate, hospitality and marine. This allows clients all around the world to benefit from our deep industry knowledge and expertise. Third, our data and analytics platform, Gallagher Drive, continues to give us a leg up on our competition. We are able to provide clients and prospects valuable insights, including trends of other similar Gallagher clients around the globe from what lines of coverage are purchased, limits ultimately bound, as well as potential catastrophe exposure and claims forecasts. Our clients and prospects are asking for more data-driven insights, and we are seeing increased utilization by our producers around the globe. And finally, 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 over 20 non-U.S. markets using the platform, including a couple of new relationships in Canada, and we expect the international numbers to increase over the next 12 months. So our global strategy is cohesive. It allows us to develop a product, a process or a new sales tool and deliver it uniformly across our global footprint. And remember, 90% of the time we are competing against the small local or regional broker. They just can't match the offerings, insights, expertise or service anywhere around the globe. Moving to mergers and acquisitions. Gallagher continues to be a merger partner of choice for entrepreneurs around the world from our sales culture, our systems, tools, data, analytics, niche experts and superior carrier relationships. Joining forces with Gallagher allows owners to take their firms to the next level. 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 March, we further strengthened our U.K. public sector and education niche practice groups with the acquisition of FE Protect, which serves independent schools, universities and other post-secondary learning institutions. And earlier this month, we completed the acquisition of LifeShare, a U.K.-based broker focusing on the vacation and leisure industry. So we continue to expand our geographic footprint and deepen our expertise. We have a proven story today outside of the U.S., and our pipeline of opportunities remains very robust. Moving to my comments on the insurance pricing environment, let me walk you around the world and discuss what we're seeing so far in July and August. In the U.K., renewal premium changes, both rate and exposure combined, is increasing 8%. Property renewal increases are in the teens, while general liability and commercial auto increases are in the high single digits and professional indemnity increases are around 3%. In Canada, renewal premiums are up 5% overall. Most major commercial lines are in the 4% to 7% range. Renewal premiums in Australia are up about 10%. We are seeing double-digit increases across many lines of business. The one exception is D&O, which is flattish. New Zealand's renewal premium change is up more than 16%, and most lines are seeing increases in the teens. Let me finish up with some additional observations from the first 2 months of the third quarter. First, new business production remains very strong and is a bit better than 2022 levels. Second, revenue retention trends remain excellent across our major geographies, typically in the low 90s. And third, we are still seeing a positive impact from midterm policy adjustments and other endorsements. So pulling it all together, I believe our international retail organic could be in the low double digits for the third quarter. So all of our international retail brokerage businesses continue to perform extremely well, and we remain excited about 2023 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 afternoon, everyone. I'm Joel Cavaness, and I lead Risk Placement Services, or RPS for short, which is our U.S. Property/Casualty Wholesale Intermediary. My comments today will focus the same cadence as Mike and Patrick had focused on the 3 topics: First, I'll begin by providing an overview of RPS; second, I'll give some comments on the market and the pricing environment in the wholesale space; and third, I'll wrap it up with some observations related to the first 2 months of the third quarter. RPS was founded in 1997 and has grown both organically and through M&A, and today is the fourth largest wholesale broker in the U.S., placing more than $5 billion of premium on behalf of our clients. Over the last decade, our annual revenues has more than tripled to around $600 million. As a wholesale broker, our customers are independent agents and retail brokers that need our unique or differentiated products, specialized capabilities and access to our carrier relationships. We are established to solve the insurance need of all retail agents and brokers, and 75% of our business comes from agents and brokers unrelated to Gallagher. RPS offers solutions to our clients via 3 main businesses: open brokerage, MGA and programs, and standard lines aggregation. So let me walk you through each one. Within open brokerage, we support retail brokers with access to specialty products. We find coverages and negotiate with insurance carriers on behalf of the retailer and their client. The types of insurance we deal were tend to be very specialized and could range from hard-to-place property to complex casualty lines. Placements in open brokerage tend to involve multiple carriers in order to fill out a particular program. Next is our MGA and our program business. Here, we underwrite price, buying collect premium and issue policies on behalf of various insurance carriers. And importantly, we do not take underwriting risk. We have about 40 programs spanning across both commercial and personal lines coverages. Within commercial, we have programs ranging from food delivery vehicles to covers for country clubs. Our personal lines programs include insurance coverage for nonstandard auto, manufactured homes and other low-value dwellings. And our third business is standard lines aggregation. Here, we provide retail agents access to admitted products for insurance carriers that they don't already have a relationship with. For example, a smaller agency might not have a direct appointment with a certain carrier. However, the agency can still access that carrier's products through us. So it allows a smaller agency to have more insurance options for its customers. We compete with a wide range of insurance intermediaries from other wholesalers to MGAs and to program managers. The clients tend to choose RPS because of our quick turnaround times, ease of doing business, product breadth and the strength of our carrier relationships. We are constantly working to improve our service, our products and offerings through solicited feedback and ongoing engagement with our clients. We also have a client relations team that provides concierge-level service to our larger, more national retail brokers, whether clients are small or large, ultimately, our goal is to be the recognized leader in intermediary market by providing a wide range of products and services across a very broad distribution platform. So Mike described the continued challenges within the U.S. Retail P&C market, which is typically a growth tailwind for RPS since retailers need our help to place coverage. So helping our customers quickly and efficiently find products, capacity and coverage is paramount. For example, we established our e-commerce platform in 2017 to allow retailers to more efficiently interact with us. Our retail clients can access more than 30 distinct specialty products through an online interface today. So we are constantly adding products, including some transportation, cyber and construction-related covers most recently. We're also leveraging the data on more than $5 billion of premium we place in the market. Our size, combined with our infrastructure, allows us to utilize this data to provide better advice to clients and develop new products and programs. It also helps us manage our own business through more timely insights into our own operations. You also heard Patrick talk about SmartMarket platform, which this allows a more efficient matching of carrier supply and customer demand. We too have a number of E&S markets using the platform, and we think that we can add a few more carriers over the course of '23 and '24. So our investments in technology and digital interactions with clients and carriers is positioning us as an even more attractive partner. So shifting to M&A, RPS is an experienced acquirer. Over the past decade, we've completed more than 30 acquisitions, including 4 last year and 2 so far this year. Our merger strategy emphasizes specialization, expertise and new product offerings that cultural fit is of upmost importance. We are typically more interested in the MGA and program space since many open brokerage wholesale merger opportunities can be replicated with seasoned producer hires. Merger partners are drawn to RPS because of our culture, the investments we make in people and data and our wide-reaching network of retailers. And given Gallagher's dual presence in the retail and wholesale markets, we tend to be very successful on opportunities that have both a retail and wholesale element. With that said, we continue to be very selective with the firms that we pursued, and our M&A pipeline remains very strong. So moving into the domestic wholesale rate environment. The E&S market has shown very strong growth over the past few years driven by risks leading the admitted market, both personal and commercial lines, combined with strong exposure growth and grade increases. We expect a high level of premium growth to continue for the foreseeable future. In fact, in the first 2 months of the third quarter, our data is showing open brokerage renewal premium increases of more than 14%. That includes about 80% of the business seeing renewal premium increases. Property renewal premiums are up about 22% and umbrella is up 12%, while most of the lines outside of D&O are up mid-single digits. Capacity remains somewhat constrained. And despite multiple years of rate increases, most of our carrier partners are still unwilling to deploy large limits on any one risk. Thus, large and complex insurance [indiscernible] remain extremely difficult to place. Across our homeowners and auto programs, we continue to see hefty renewal premium increases. Certain carriers are pulling out of the whole owners market in cat-exposed area and with an active hurricane season already underway and rising reinsurance costs, we expect these types of renewal increases to continue. So moving to our binding operations, we are seeing about 8% renewal premium changes so far in the third quarter. That's similar to second quarter, but above full year '22 renewal increases. Property and packaged renewal premium increases are up double digits relative to last year. So needless to say the market remains difficult. So let me finish with a few data points from July and August. First, new reoccurring business production and client retention remained very strong and both is slightly better than prior years. Mid-term policy adjustments, including policy endorsements and audits, combined are also trending better than last year's levels. So one small heads up. As Pat mentioned earlier, third quarter contingents are likely to be lower year-over-year by around $2 million to $4 million from the Hawaii wildfires. Very tragic situation and [ 70 to 1,000 ] of people that are impacted. So bringing it all together, it feels like third quarter organic for RPS will be around 80%. In summary, the E&S market should continue to grow as we help our clients navigate challenging market conditions, and I believe that we've never been better positioned. We have a growing portfolio of products, and we combine with technology, analytics and data allows us to provide the spoke programs and valuable insights to our clients, all of which is built around our outstanding service and our carrier relationships. I truly believe we have built the best wholesale intermediary, and we're in a great position to deliver another excellent year at RPS. Okay. I'll stop now, and I'll turn it over to Tom Gallagher, who's going to discuss our London Specialty and Global Reinsurance Operations. Tom?

Thanks, Joel, and good afternoon 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 P/C units, my comments today will focus on our London Specialty and Reinsurance Brokerage operations. I'll begin by dimensioning these 2 businesses, I'll then touch on some operating priorities in M&A, and I'll finish with some comments on the pricing environment and provide an early look at the third quarter organic. Starting with an overview of the London Specialty and Reinsurance businesses. Combined, we finished 2022 with approximately $1.4 billion in revenue, around $500 million in specialty and about $900 million of revenue in reinsurance. Our leading London Specialty franchise has roots dating back to the mid-1970s. Here, we focus on larger commercial clients and also support retail agents and brokers around the world place specialty insurance solutions across 6 main divisions: aerospace, marine, financial lines, construction, energy and property. Over the past decade, our specialty business has tripled in size, growing both organically and through M&A. We have around 1,000 colleagues placing nearly $6 billion in premium annually, split between the Lloyd's market and company carrier markets. Today, about 1/3 of our specialty business is North American risk, another [ 25% ] coming from the U.K. and the remainder from countries around the globe. Moving to our Reinsurance Brokerage business, Gallagher Re, which was formed through the combination of our 2013 start-up Capsicum Re and the purchase of WTW's treaty 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. Looking ahead, I see a lot of exciting opportunities in specialty and reinsurance. We have a number of growth-oriented initiatives. A few to note include: First, expanding our niches and specialisms. We're focused on broadening and deepening our growing list of industry and product verticals, including new products in areas like mortgage and cyber. Within Gallagher Re, we are also expanding our direct and facultative reinsurance offerings around the globe. Second, adding and developing new talent colleagues that will expand or deepen our expertise across reinsurance at our 6 specialty trading units, including leveraging our graduate program, Gallagher Futures. Third, capitalizing on cross-divisional opportunities. We are seeing many new business opportunities, whether through Gallagher Bassett, our retail operations or our global MGA and programs operations. And finally, SmartMarket. We have already signed up a number of London Specialty markets to the platform and believe there will be appetite for additional carriers in '24 and beyond. Turning to mergers and acquisitions. We are always looking for potential merger partners around the globe, and specialty and reinsurance are bit different. We have completed a couple of mergers over the past year. For example, we acquired a risk management consulting firm focused on larger corporate clients called AnotherDay, which added to our specialty offerings. And earlier this year, Gallagher Re acquired Bay Risk Services, which expands our global programs practice. Looking forward, we continue to talk with a number of firms and have a strong pipeline of potential opportunities. Next, let me provide some comments on the market environment, starting with reinsurance. Midyear reinsurance renewals were orderly with modest price increases on many cash treaties, capacity constraints in certain specialty classes and 25% to 40% price increases and higher attachment points for most property current cat treaties. As we noted in our recent reinsurance market report through the first half of '23, reinsure underwriting profitability is good. Capital levels have rebounded and the reinsurance industry looks likely to produce a return that will exceed the cost of capital, something the industry has struggled with over the past decade. Despite the strong start, we have yet to see meaningful new capital enter the reinsurance space, although there's been more interest in the ILS market and cat bonds. There have been a number of large insured U.S. catastrophic events here in the third quarter, including the Lahaina wildfire, Hurricane Hilary and most recently, Hurricane Idalia. And despite these notable events, it appears that most of these losses will remain in the primary market, a positive for future reinsurance capital and potentially supply. On the other hand, don't forget that just because these losses didn't hit the reinsurance market, they do hit the primary market. Insurance carriers are facing more losses, given the lack of available reinsurance protection on lower layers, which could increase demand for more protection. Earlier this week, I spent time at Reinsurance Rendezvous and these supply-demand dynamics were part of early conversations ahead of the January 1, 2024, renewals. So despite favorable reinsurance underwriting results to date, we don't expect much change in reinsurance market conditions into '24. And without a major catastrophe event before year-end, we expect an orderly 1/1 renewal season. I also spent some time with the London Specialty team last week. Overall, renewal premiums continue to rise across most lines cover with inflation acting as a floor to premium increases, especially where insured values are climbing. Overall, we are continuing to see renewal premium increases somewhere in the mid- to high single-digit range and only a few pockets of price competition. For example, some casualty and financial lines are seeing renewal premiums more flattish and a subset modestly lower, such as public D&O risks. Energy-related renewal premium increases are in the 5% to 20% range depending on class and exposure to natural catastrophes. Renewal premiums on aviation hold work continue to see significant rate increases, while the more vanilla all-risk policies are still seeing exposure-driven premium increase. Cat-exposed property continues to harden, and we expect more limited capacity into year-end as some syndicates bump up against their imposed premium cat. Bottom line, premium increases continue, not much of a change from 7 weeks ago. So our London specialty and reinsurance brokerage businesses are performing extremely well. For the third quarter, I see organic of these 2 operations combined somewhere in the low teens. Looking ahead longer term, I like our competitive positioning. We have all the pieces to compete for any risk of any size anywhere in the world. Our nimbleness, combined with our broad range of products, vast practice and coverage area experts, creative solutions and analytical tools position us extremely well. Okay. I'll turn it over to Bill Ziebell, who's going to discuss our benefits brokerage and HR consulting operations, known as Gallagher Benefit Services. Bill?

Thanks, Tom. Good afternoon, everyone. I'm Bill Ziebell, and I lead Gallagher Benefit Services, our Employee Benefits and HR Consulting Business, or GBS, for short. My prepared remarks today will cover 3 topics. I'll first provide an overview of GBS, and then I'll give you an update on our execution strategies, and finally, offer some observations and takeaways from our third quarter. Okay. So starting with an overview of the business. GBS began in the mid-'70s, was predominantly U.S.-focused through most of its history, but began to expand internationally a little more than a decade ago. We entered the United Kingdom in 2010, Canada 2 years later. And 6 years ago, we established our operations in Australia. At the same time, we were expanding internationally. We added a multinational consulting business to help employers with operations outside of our core geographies. In the last 10 years, the business has tripled in size to more than $1.8 billion of run rate annualized revenue, and we have significant scale across HR and benefits products focused on physical and emotional career and financial well-being. Today, GBS is the fourth largest benefits broker and HR consultant in the world with around 7,100 employees. The United States remains our largest geography and represents about 90% of our annual revenues generate from about 100 locations, with the remaining 10% predominantly from the U.K. and 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 2/3 of our annual run rate revenue. The remaining 1/3 of our annual revenue comes from HR and compensation consulting, retirement, executive life and other services that help employers address their human capital and organizational well-being strategies. Most of the time, we are competing against smaller local or regional benefits firms and our typical clients are middle market businesses, which we define is having somewhere between 100 and 5,000 employees. 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 benefit business. Mike and Patrick talked about the retail P/C client value proposition, CORE360. GBS has a similar client-centric value proposition called Gallagher Better Works. It's the approach our professionals take to explore and examine the most important initiatives and strategies that employers can utilize to attract, engage and retain talent while simultaneously managing costs. From making investments in physical and emotional health, enhancing financial well-being to competitive compensation plans, our professionals explore a variety of employee rewards and benefits and the solutions we recommend can be very bespoke and tailored to align with our clients' needs and ongoing human capital strategy. Even with an uptick in the U.S. unemployment rate this past month, the labor market remains very tight and most companies are competing for a limited pool of talent. There were nearly 9 million job openings in the U.S., still well ahead of the 6.4 million people unemployed and looking for work. So while the labor market appears to be showing some signs of loosening, it's still very competitive when it comes to attracting and retaining talent. Our most recent U.S. organizational well-being report confirmed the labor market challenges with the employee retention ranked as the top priority for operations and HR this year, and that's mostly because of the lost productivity and experience associated with losing employee. Additionally, it usually costs more to hire a new employee than retain someone who's already on the payroll. Also on the cost front, wage inflation is causing expense pressures for many organizations and providing strategic -- sorry, and providing strategies to navigate rising employee wages is extremely valuable to most businesses. GBS is well positioned to help clients manage the challenges presented by retention and wage pressures. In terms of medical cost trends, we continue to anticipate an acceleration in 2024 due to a number of factors included increased cost of hospital and physician services, a greater incidence of high-dollar claims and the impact of cell and gene therapies and specialty medications. Carriers are shadowing a hardening market in '24, given the increased cost, so self-funding and medical staff loss may be an increasingly important client solution to offset this pressure. So there are a variety of issues impacting the HR and benefits market. Our holistic approach to Gallagher Better Works positions us to help our clients navigate them all. Outside of the typical producer generated meetings, our thematic webinars and thought leadership continues to drive engagement with our customers and prospects. Through the end of August, we had hosted nearly 35 different webinars covering topics like compliance updates, workplace well-being, financial market updates, and various cost containment strategies. And as I have highlighted before, we continue to have great success with our women in leadership webinar series. These female-led webinars such a variety of topics, including lessons and resilience in growth tied to influence company culture and communication strategies. All of these interactive Internet-based events are in addition to the thought leadership that we are publishing on a regular basis. These include reports focused on physical and emotional well-being, workforce planning, mental health awareness and DE&I. 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 see -- to separate and differentiate ourselves from the competition to regular engagement with our experts, our thought leadership, web-based discussions, harnessing data and analytics into the design and delivery of Bespoke, Benefits and HR solutions. Shifting to M&A. GBS is also a seasoned acquirer, focused on finding talented entrepreneurs that fit culturally and are looking to grow their business. We completed 8 mergers during '22 and a couple so far here in '23, including our largest merger to date, Buck. Merger partners are typically drawn to GBS due to our innovative tools, specialized practice groups, niche experts, thought leadership, technology and global resources. We have a very nice pipeline of opportunities and believe '23 will be another successful year for our merger strategy. Shifting to some comments on July and August organic, starting with the U.S., which again represents about 90% of our annual revenues. Recall about 80% of our annual domestic revenues related to typical coverages you get via your paycheck from your employer, including medical, dental, vision and voluntary insurance products. During the first 2 months of the quarter, we are seeing increased new business production, slightly better customer retention and consistent employee counts. Looking ahead, more workers are turning to the labor force and eventually securing employment is a tailwind 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 remains very strong to the ongoing labor market balances and the continued cost challenges. It's driving employers to engage with our fee-for-service and consulting practices as they prioritize bespoke strategies to retain, attract and motivate their workforce. These are really attractive engagements, but the revenue just doesn't occur as smoothly and as predictable as some of our other lines. Most of our practice groups continue to show nice growth in July and August. This includes our HR consulting, technology consulting, retirement and communications practices to remain very optimistic about our pipeline of future opportunities. Shifting gears to outside the U.S., which is about 10% of our total revenues, we are seeing very strong growth in Australia and the U.K., while Canada is seeing revenues more flattish. So when I combine what we are seeing across our global business, third quarter organic is running about 7%. Looking out further, I believe we are very well positioned for continued growth. Through our Gallagher Better Works value proposition, we can 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'm very excited about our future. I'll stop now and turn it over to Scott Hudson, who is going to discuss our Risk Management segment, also known as Gallagher Bassett. Scott?

Thanks, Bill, and good afternoon, 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, GB is our Risk Management segment. Today, I plan to cover 3 topics. First, I'll provide an overview of Gallagher Bassett, or GB for short, then I'll give some insights into what we're seeing so far here in the third quarter, and 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 in -- during 2022. And today, it's 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 20% spread across Australia and, to a lesser extent, the U.K., Canada and New Zealand. We have more than 7,600 employees, most of whom work from home. GB does not 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 annual claims paid amount would make us 1 of the 10 largest P&C insurance companies here 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 claims. It's worth noting that we really are not storm or catastrophe loss adjusters but rather focus on specialty or complex property claims. A decade ago, claims services for work comp, general liability and property were nearly all of our business. However, today, we offer many specialty products for lines such as medical malpractice, professional liability, environmental, products liability and cyber. And we continue to evaluate new potential products and offerings looking to offer best-in-class claims services for all of our clients' exposures. We segment our business by client type. There are 4 different types. First, we've got large commercial clients. Think Fortune 500-type businesses. These commercial clients have balance sheets that allow them to self-insure or have large deductible programs so they assume a portion of their own insurance risk can outsource the claims resolution process to Gallagher Bassett. This is our largest and most mature client segment. The second type of clients are public sector customers. School districts, municipalities, state entities and federal governments. For example, we are a provider to the Australian State workers' compensation schemes. Third, we have group captive or alternative market clients. These insurance entities utilize our services for their claims infrastructure. And finally, our fourth client segment is insurance carriers. These organizations choose to outsource or white label a portion of their claim handling. Over the past 10 years, we've grown from very little insurance carrier revenue to about $250 million of annual revenue across almost 150 different clients, both large and small. Customers choose GB because we deliver clients superior outcomes through our deep expertise, outstanding service and solid execution. In certain cases, the superior outcome could be the avoidance of a loss as well as the mitigation of the loss, more efficient medical care delivery, faster return to work or higher employee satisfaction. We customize our services and organize our claim resolution managers around client and claim type. For example, we don't have a resolution manager for a large trucking firm working on public sector entity slip and fall claims. Rather, our offerings are highly customized to align with client expectations of a best outcome, whether that be brand protection, ensuring customer loyalty or back to work sooner, we tailor our offerings to add more value for clients. We believe that level of service customization, combined with our size, scale and superior technology, is very attractive to insurance carriers. Today, about 90% of our U.S. insurance claims are still handled by insurance carriers. So there remains a large potential market for our services. And with many carriers facing aging claims systems and recruitment challenges, outsourcing a portion of their claims handling can help them alleviate these challenges. We have also been showcasing our runoff capabilities with insurance carriers prospects -- excuse me, we have also been showcasing our runoff capabilities with insurance carrier prospects more and more. Here, carriers can move a large group of legacy claims to our platform, which can result in better outcomes and reduce expenses for the carrier. Another newer product is our integrated construction offering that provides services across the full cycle of loss. Here, we provide loss prevention strategies, including safety, training and awareness programs cultivated specifically for the construction sector. Additionally, we provide on-site safety professionals to monitor, manage and advise on workplace safety in real time. All of this on top of the more typical claim response, resolution and superior claim outcomes that GB can deliver. We're seeing a lot of interest from prospects and are excited to expand into other potential industry verticals over time. Moving to mergers and acquisitions. We too see M&A as an attractive way to expand our offerings and expertise. With that said, the opportunity set of potential merger opportunities is narrower than on the brokerage side as the TPA industry is much more consolidated. We have a straightforward M&A strategy, 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 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 continue to work a pipeline of potential opportunities. Moving to some comments on the third quarter of 2023. Let me provide you some data points on what we're seeing through August. First, new business. As clients respond to various cost pressures, today's superior outcomes are even more important. So we are seeing many new business opportunities here in '23 looking to build on 2022's outstanding new business here, where we secured new large clients in our Carrier, Risk Management and Public Entity spaces. Second, client retention. It remains excellent, which is a reflection of the value we provide customers through our broad offerings, customized services and industry-leading tools. For example, we recently added a Litigation Avoidance Solution that after a year-long pilot resulted in meaningful claim savings due to less attorney involved claims and ultimately lower paid losses. Third, core new claims are rising. That's excluding COVID-related claims through July and August are modestly higher across workers' compensation and liability, while property claims are up significantly. Importantly, we are not hearing expectations of an impending -- of an economic slowdown for our clients. Pulling it all together, we're seeing an excellent third quarter organic between 15% and 16%, and adjusted EBITDAC margins above 20%. And with a great first half, we are very well positioned for another fantastic year. So the business continues to capitalize on what we've built over the past decade. As I look ahead, the business will continue to benefit from: number one, our investments have been focused on enhancing service and the overall claims experience; two, the expansion of our products specifically further broadening our specialty claims handling capabilities to handle more of a client's exposures; three, the development of additional integrated industry solutions for our efficient client-centric platform that makes us the provider of choice; and finally, our compassionate and client service-focused culture, which treats client satisfaction at very, very high levels. As you can tell, I'm extremely excited about both our near- and long-term prospects. Okay. 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 recap the organic revenue comments made by each of our business leaders and boil it down to what it means for the third and the full year. Punchline is, we still see 9% Brokerage segment organic growth for third quarter and at the upper end of the 8% to 9% for full year. As for Risk Management segment, 15% to 16% in the third quarter and around 15% for full year. Next, I'll provide our most current thinking on '23 margins by quarter and full year. Punchline is this. We are still estimating 40 to 50 basis points of Brokerage margin expansion for each of the next 2 quarters and Risk Management margins around 20% for each of the final 2 quarters of '23. Third, I'll give you some sound bites from our updated CFO commentary document that we posted on our website. The punchline there is most items outside of the impact of FX are very similar to 7 weeks ago. I'll also provide a vignette to help you model margins quarterly, given that we levelize the prior year for FX. I think worth a few minutes today to give you what you need to reflect these items in your models. And then I'll wrap up with some comments on cash, M&A and capital management. Okay. Let's go to the business unit organic revenue recap. Mike, Patrick and Tom had upbeat commentary in our global P/C retail, reinsurance and London Specialty brokerage operations. Across these businesses, we are seeing excellent new business production and strong retention. One heads up, you might notice that each of them gave global renewal premium increases that on the surface seem lower by a point or so relative to what we said in our June IR Day. Please note, when we adjust for a line of business mix and also client mix, those percentages are very similar to second quarter and more importantly, higher than what we were seeing in '22 and early '23. So it feels like our global retail specialty and reinsurance units, third quarter organic could come in somewhere around 11%. Joel was anticipating another strong quarter in our U.S. wholesale brokerage business. Programs and binding combined are up high to -- mid- to high single digits, while open brokerage is showing fantastic organic, again, in the mid-teens. Joel's RPS units combined are expecting third quarter organic growth around 8%. That does include a couple of points of unfavorable organic impact from the Hawaii wildfire as we adjust our expected contingent commission. Bill walked you through our Employee Benefits and HR Consulting business. He has seen solid underlying growth in health and welfare and consulting. Overall, our Benefits organic is expected to be around 7%. So pulling it all together, it's looking like Brokerage segment third quarter organic growth will come in around 9%. As for fourth quarter, we are still expecting headline organic growth around 8%, but pushing 9% when you control for that Q4 '22 accounting adjustment, that's a 606 estimate change we've been calling out over the last year. So if we post these results, full year '23 organic will end up in the upper half of 8% to 9% range. And just to be clear, these organic growth percentages exclude fiduciary interest income. As for our Risk Management segment, you just heard Scott say third quarter organic is shaping up to be between 15% and 16% due to new business and higher claim volumes. As for fourth quarter, we will begin to lap some of last year's bigger new business wins. So fourth quarter may be around 12%, which would bring full year '23 organic growth to be around 15%. Before I shift to margins, a quick comment on the reported fraud at Vesttoo. Like others in the industry, we are closely monitoring the situation. We have less than 2 dozen client placements involved in Vesttoo spanning calendar years '21 to '23. At this time, almost all have incurred losses below or about equal to ceded premiums and only 1 placement has incurred loss as well in excess of ceded premiums, but even then at a manageable amount. We are working diligently with our customers to find the best solution for them. While our work is ongoing from what we have found thus far, this is not a significant issue for Gallagher. Okay. Now let me shift to the Brokerage segment adjusted EBITDAC margins. During our second quarter earnings call, we forecasted that an 8% to 9% organic growth environment, we thought we could expand full year margins, 70 to 90 basis points, excluding the impact of the Buck acquisition and 30 to 40 basis points, including the impact of the Buck acquisition, which remember, it naturally runs at lower margins. So as we sit here today, those full year expansion expectations continue to hold. By quarter, we see third quarter expansion closer to 40 basis points and fourth quarter expansion a bit above 50 basis points. Once again, no change to full year expectations. Reflecting these estimates into your models is a little more complicated because of how we levelize the prior year margins for the impact of FX. Recall I did a short vignette on how to model adjusted EBITDAC margins during our June IR day, but here's a repeat. Start by revising third quarter 2022 margins, which would be about 31.7% using FX rates today, now the 32.3% we showed back a year ago. Then you will need to apply your pick for year-over-year margin expansion when you're computing your current year margin. And as I said earlier today, we see is about 40 basis points. As for fourth quarter '22, FX is not causing nearly as much impact as of now. Call last year's revised fourth quarter about 31.2% and again, that's using current FX rates versus 31.3% we actually showed last year. Again, apply your margin expansion pick to that slightly revised percentage. Looking forward, FX will likely continue to cause some noise, but remember, it's just noise. We are confident we still have substantial productivity improvement opportunities. These targeted operational efficiencies will also allow us to make further investments into our sales and service offering. As for Risk Management segment margins, also a great story. Here, as Scott said, we are expecting to deliver margins in excess of 20% for the third quarter and margins should be above 19.5% for the full year. Now let's move to the CFO commentary document that we posted on our website. Starting on Page 3. This shows you the usual Brokerage and Risk Management segment modeling helpers. The biggest heads up again relates to FX. While only a modest change to EPS, some larger impact swings to revenue versus our late July estimates. And it also does cause an impact year-over-year. So we're the double check as you incorporate that FX impact into your revenue estimates. When you turn to Page 4 of the CFO commentary document to the corporate segment outlook, 2 comments here. First, we made a tweak to our interest and banking costs and third quarter acquisition costs, given the strong merger activity in the quarter. And second, we increased our corporate expense line, again, mostly due to FX. Recall, FX impacts our corporate line because of FX remeasurement gains or losses. It's a $4 million expense at the end of August, that could change favorably or unfavorably over the next couple of weeks, but we're calling it out now. Turning to Page 5. This page shows our tax credit carryforwards mostly related to our clean energy investments. There's no new news here, and the punchline remains the same. We have around $700 million of available tax credits as of June. That creates a nice cash flow sweetener for M&A over the next few years. And recall that benefit shows up in our cash flow statement rather than our P&L. Move to Page 6 and the M&A rollover revenue table, you'll see that we're expecting about $146 million of rollover revenue in the third quarter, and that shouldn't change much given that we are just 2 or so weeks away from the end of the quarter. And don't forget, for future quarters, you'll still need to add your pick for future M&A. When you do that, please pay attention to Note 1 on Page 3, which says that if you assume we buy more than our free cash flow, we would need to also borrow. So please model an increased amount of interest expense to align with the estimated incremental borrowing. All right. So let me finish up with my typical comments on cash, debt and M&A. At the end of August, available cash on hand was over [ $450 ] million. And with that current cash position, combined with strong expected cash flows and some incremental borrowing, that positions us very well for our pipeline of M&A opportunities. In total, we continue to estimate towards $3 billion to fund potential M&A opportunity during '23 and should be a little more than that again in '24. So those are my prepared comments. As Pat noted, the business is in fantastic shape. From my position as CFO, nearly 3 quarters of the way through the year, our full year '23 outlook on all measures continues to get better, better organic, better margins and a more robust M&A pipeline. As we sit here today, we remain just as bullish as we were a few weeks ago during our July earnings call. I believe we are very well positioned to deliver fantastic financial performance here in '23 and even beyond. Okay, operator, we're ready to move to Q&A.

[Operator Instructions] Our first question is coming from Mike Zaremski of BMO Capital Markets.

So my first question is actually on M&A, and it's a longer-term question. So I think it's clear by your remarks and your track record that the M&A environment remains robust. I'm curious if we were to think out more than just a year or so, is there a year, say, 2 to 3 years from now where we shouldn't earmark 100% of your free cash flow plus debt capacity to go into M&A kind of just given how large Gallagher is and how many other consolidators there are?

So let me let -- this is Patrick. Let me -- let Doug touch on the actual cash flow numbers. But as far as our opportunities, when you talk about just United States, having over 30,000 of these, most of whom are much smaller than the ones we're even tucking in, the opportunity for us to keep doing these deals is just unbelievable. And in terms of being able to accumulate them, right now, we're still having a lot of competition. I'll be a little bit less fierce from the private equity community who should that diminish even more further or somehow exit at all. In my experience, we went through this very same scenario with the banks. Banks were flavor of the month. They were buying everybody. It was fee income. It wasn't associated income, and they all bulked up on brokers. Well, all but 1 or 2 or so. So we'll see where private equity goes. We're in it for the long term. I think the opportunities are huge, and I'll let Doug talk about whether it consumes all our cash. It will certainly come close.

Listen, Mike, I think over the next couple of years, certainly, we're in that $3 billion plus range. I'll step up to $4 billion to $5 billion a year after that, if we continue to grow, and we've got some nice organic growth over that longer period. So I think there's going to be plenty of opportunities to deploy our cash into M&A. Of course, if we don't, we'll buy our stock back. And then during this time, we'll make sure that we maintain a solid, solid investment-grade rating. So...

And dividends.

And dividends. There's opportunities for dividends too. So I think that we've got plenty of opportunities to employ our cash. And the opportunities are immense, Mike. When you look at our [indiscernible] right now, we just had our meeting this morning, hundreds of opportunities that are on there. And as we've proven, we do pretty darn well by buying [ 60 or 70 ] of them a year, and we get about [ 59 or 69 ] of them right on that. So there's still a ton of opportunity in a business that's primarily run by baby boomers. The need for resources and capabilities continues to become bigger and bigger need from our clients. The great producers that are working for those smaller agencies see the capabilities that we can bring to them. The data that we can provide, the insights into our business, I see us having tremendous opportunity to buy them and still have a terrific arbitrage to our trading multiple. So I see this as a long-term strategy that, candidly, we're getting the same question 10 years ago, and it seems to me we seem to be able to continue to do it a decade later and probably a decade from now, we will too.

Okay. That's helpful commentary. I guess switching gears a bit to some of the commentary from Mike Pesch, for example, on loss cost trend, and I think Mike used the word no reprieve and we are seeing some data points and I'm sure you're seeing that at point there maybe even some rising levels of loss cost trend on the social or lawsuit inflation front. But I'm curious -- I don't know if you want to add any commentary around the loss cost trend, but I'm even more curious about international. Is -- are things different overseas? Or is loss cost inflation decelerating potentially like -- unlike the U.S.?

Yes, I can start and maybe pass it over to Tom. This is Mike Pesch. I would say to use upon, I mean, the jury is still out on social inflation and the impact that it will have on some of these sizable jury awards. And so I think that still has an impact from an underwriting perspective. So on tough casualty risks, we're still seeing that play a part in how much they're willing to put out in terms of capacity and at what rate they're charging. So I don't see that trend changing in the near term as a lot of our top carrier trading partners are telling us that they're still very concerned about that impacting their overall losses. So I think from a liability perspective, I would say, still more of the same as this kind of still makes its way through the court system and things of that nature. From a loss cost perspective on comp, comp is still a line of coverage that people are very interested in, but logic would tell you that medical cost inflation will still have an impact on that at some point in time. And so when medical cost inflation starts to exceed indemnity, that will create a headwind in comps. So I do anticipate that line of coverage, and we saw it in our numbers starting to bump up. Now the numbers I shared with you include exposure so that is including payroll, but I think there will be a bit of a shift. But punchline here is we're headed in a couple of weeks to the CIAB where we'll spend a lot of our time with our top trading partners, getting a download on what they see at least for the next 12 months.

I would add just on the international front. Now we do not see any softening of social inflation or loss cost, in fact, at Rendezvous last week, the reinsurers are less excited about writing casualty cover than they were just 12 months ago.

Our next question is coming from Rob Cox of Goldman Sachs.

You guys provided kind of some early indications for 2024 at the last earnings call. I'm just curious, as you sit here today, what you think potentially organic growth could look like next year?

Great question, Rob. We're just starting our budget process now. I would think that -- I see the environment very similar next year to what we're seeing this year, and that's probably the go-in assumption. We'll learn a lot here in the fall as we start to get it rolled up from all of our divisions. But right now, I would think that organic could look very similar next year to this year. And remember, we started off this year saying that 7% to 9%, that might be just as good a pick for next year.

Great. And as we think about that organic growth, could you comment maybe on expectations for any differences in kind of the drivers of the underlying organic growth or any shifts between lines of business that you would expect to outperform or lag?

Well, a couple of things. I don't know if we're betting on anybody performing all that differently this year. But I just don't think -- I mean you're in this business. I don't think IPOs can continue to be nonexistent. So I think there could be some strength in that line. D&O, I think we're seeing that may be kind of bottom out. We're starting to see it turn a little bit on that. So maybe we'll get some retreat there. You heard Mike say that medical inflation could touch workers' comp differently. Property, I think, is -- we'll see what happens. I mean Lee wobbles a little bit to the left, another one comes through, you got a property market that could be in disarray with another big hit. I just think that across the board [ rates needed ] and now we're starting to read more and more and more about casualty reserving from the path concerns there. So when you have 7 years of casualty reserve losses developing potentially a little tougher than originally expected, it takes a lot of price in 1 year to get that back.

Well, it's inflation, I don't care what you're reading [ the favor ], it's not down. I'm sorry, but the products that you need to buy to build houses, fix houses are up, salaries everywhere up. It's difficult to get people to come to work. You can see what you read about the UAW and what's going on in Detroit. I mean there are some big pressures there, and that falls right into premium right through the system.

Okay. Great. And if I could sneak one more in here. I think last year, you guys had talked about overly exposed to contingents on the property side. So I was just wondering if we could get some more color on where the -- what business the contingent impact came from and your just overall exposure to catastrophes on the contingent side?

Yes. Listen, most of this that we're talking about is not wind exposed. It's more fire exposed, and that's what happened to us in Hawaii is that we have a really, really terrific co-selling operation in Hawaii, and the tragic event there is to bring down an entire town just isn't priced into that. So the carriers are going to struggle on that. And we're going to participate with them a little bit on our contingents, call that, $2 million to $4 million.

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

I guess where I'd like to go is Mike and Pat and Joel, all mentioned personal lines in their commentary. So I was wondering if you could size up how your personal lines business is inside your total footprint? And then secondly, that market is under such stress. I think we saw some news out that farmers was going to cut its commission rates. I'm just curious how you're feeling about the commissions that you guys are going to get paid on personal lines next year considering all the pressure that's going on in that area of the market?

Yes. This is Mike Pesch, Greg. So a couple of things to unpack there from a personal lines perspective in the U.S. when you factor in both the high net worth category and also our standard personal lines. It's anywhere between $70 million to $100 million business, but it is growing. And I mentioned on the last call back in June that we've really bolstered what we're doing in the private client area as a big area of focus for us. And we do think that there's opportunity not only we can scale but expertise and expertise when going to market. So your last comment about pressure from a compensation standpoint, one of the reasons why we like that business and like getting bigger, both here in the U.S. and we have a very formidable operation in the U.K., is that we will have options and we can work with our colleagues to help create capacity, whether that's through RPS or Gallagher Re because that's what the clients need right now. They need capacity, especially in that specific area of the market. So I'm rather bullish on our personal lines business. Yes, the workload is more, right, because we're having to market this business considerably and search for alternatives for that group of folks in our business. But that's where the expertise and scale supports the business.

Yes. I'll jump in. This is Joel. Obviously, we have a really nice personal lines business. It's scattered broadly across the country. It is, as you say, in some tough spots and some tough states, sorry. I think it will continue to be there because personal lines being predominantly it is a product and when [indiscernible] can't keep up certainly with inflation, and they can't keep up with the values. It's very difficult for them to make money. And that's kind of what you've seen over time over the course of the last really year in California, Florida, Louisiana, and it's really creeping into the Northeast now. And the one good thing for RPS, of course, when disruption like that occurs in the admitted market, the migration to surplus lines that allows those carriers -- our carriers to be able to get needed rate and needed terms, that's really the -- where people turn to. So it's really a -- it could be a [indiscernible] for the wholesale space.

Greg, just a final comment on commission. And again, I think uniformly, if I look across the entire business, we haven't seen just an inherent pressure on our commission on each and every trade, but we're also talking in a very significant upmarket in terms of rate increases. So where we can get capacity and where we could solve problems for clients, we -- if that comes to fruition that there is pressure on commission, you're going to be talking about pressure on commission in an inflationary environment. So again, I still feel pretty bullish about overall revenue and a positive impact.

Well, especially with the growth of the E&S market, if you step back and look at how many really good wholesalers there are there, there aren't a lot. RPS is very, very good. And we -- and that market is growing high double digits.

I guess, the other question I had just listening in on your comments, Bill, you spoke about a hard market in medical next year. I kind of feel like it's always a hard market with medical cost inflation going up every year, but is there something that you're seeing in the system that's going to make it even more pronounced next year? And then, I guess, if that's the case, it's -- my guess is that's going to have implications across all the businesses inside Arthur J. Gallagher, but anyways, any additional comments would be helpful.

Yes, you're right about seemingly always hard market, but it's almost become like the expectation that they're going to get an increase in the renewal year-over-year, that type of thing. And I think with a lot of other issues going on like COVID and back to work and things of that nature, wasn't a lot of highlight on the actual medical inflation side of things. But during COVID, people were not going to the hospitals, to the doctor, they were staying at home. The people that were in the hospital were the ones with COVID having some severe cases. There was a lot of overtime among the staff at these hospitals, creating shortages for nursing and other technicians. So when COVID came -- we came out of COVID, that industry was -- they had a lot of burnout and a lot of issues regarding compensation. The health care systems were having to increase pay, find way to get -- ways to get people back to work -- come back to work, not just to the hospital but get back to the workforce. And so that's driving up the labor cost in that environment. Then the patients coming back who had not gone to see their doctor for a while, there we saw a spike in cancer diagnoses. And that happened here in '22 and now '23 because they basically skipped 2 years ago seeing their physician. On top of that, you're also seeing all these new drugs about to be released. Some have already come out that are quite expensive. And there's just a whole lot of these things that get built up. And remember, we're not -- most consumers don't go to the hospital and look at the price list and pay. These are under contract with the health plan -- the health care carriers. And those type of pricing pressures have been building. And as those contracts renew with a carrier like an Anthem, UnitedHealthcare, Cigna, one of the Blues, they're going to get their rate increase, and that's what you're seeing on the fully insured side. Stop-loss carriers are also seeing the same trend in terms of the number of very large claimants increasing rapidly to -- a lot of them are going up now over $1 million. You might recall that the ACA eliminated lifetime caps on what can be reimbursed. So this is all building up. Some of the things I've seen is that '24 will be hard. '25 and '26 could be even harder. So all of these things are going to create demand for our consulting services, our capabilities, our actuarial capabilities, analytics and our ability to dissect what's driving the cost and try to find a better cost solutions for their employees. So while just like when you have a hard P&C market, this doesn't always list at the same rate. The job is to mitigate those increases. And in many cases, because of the inflationary aspect of it, there are pressures on our compensation as well. But having said that, I do think it's going to help with us greatly in terms of getting tailwind on our organic because we have these difficult times, there is a flight to quality and the local broker just cannot keep up with the capabilities that we can deliver for Middle Market America.

Our next question is coming from Elyse Greenspan with Wells Fargo.

My first question, in response to an earlier question on '24, you pointed to most businesses, I guess, seeing organic growth about in line with this year's levels. I know, Doug, you highlighted a few exceptions. But my question, I guess, relates to reinsurance, right? So if we don't see a large level of losses this year and the expectation is flattish pricing next year, I guess there could be some changes to demand for coverage. How could that triangulate into organic growth within your reinsurance business in 2024?

When I was at Rendezvous I had the opportunity to listen in to a lot of our reinsurers talking about the results in 2023. And this is very early. I mean we really have just 2 quarters of this year done those. If you think about last year around everybody was saying was going to be an orderly year-end, and then we had Ian. And so you've got Lee coming up to the Northeast right now, who knows what that is going to happen. When you think about their positioning at this moment in time, this year, they're saying they've got capacity, but they are not going to move into lower retentions. They're just going to stay where they are. As I said in my comments, it's been a long time since they've had consistently good results for a while. And I think they're very comfortable sitting in the position they're in. That means that the insurance companies who are seeding premium to them are going to continue to have upticks in claims that they're facing on a continuing basis into 2024. That's going to drive price. And so you've got the reinsurer saying that they can actually continue to keep the rates where they are, so that's good for us. They do have more capacity to write more premium, but they're not bringing the rates down and the primary carriers are going to be struggling, I think, this coming year. So I think it portends well for organic.

And then my second question, on the last quarter's IR call -- the investor update call, you were -- you guys were talking about potentially over the next 5 years having 35% to 40% of your workforce in centers of excellence. So how do we think about triangulating that into long-term margin aspirations for Gallagher? I'm not talking about this year or next year, just down the road how impactful could offshoring be to your margins?

I think offshoring helps us improve our quality and improve our productivity. Our response times can be done 24/7, which is terrific. It offsets some of the wage inflation that we are seeing. And I don't mean inflation beyond what our normal wage inflation time is, but it also allows us to invest in other growth initiatives and technologies. So -- probably the best way to think about it is every year that we get more productive allows us to pay our people more and allows us to invest in the growth. But it's still -- there are still opportunities there for us to continue to offshore. And remember, we offshore, we don't outsource primarily. And so our teams over there are highly skilled, highly trained, providing knowledge-based work at a cost point that is more attractive than what we're seeing in other areas. So there's opportunity there, Elyse. What the actual impact of it over time? I don't know it wouldn't surprise me if there's $25 million to $50 million of annual amounts that we can harvest out of that and probably reinvest a goodly portion of that.

And one last one. Pat, you mentioned private equity interest weaning a little bit on the M&A side. Your deal multiples kind of late consistently been in that 10 to 11x range. Do you think at some point, we could see the PE pullback up have an impact on deal multiples? Is that something you would expect in '24?

Not in '24, but long term, yes.

Remember, let's clarify the appetite for PE. It's really more the receptivity of the sellers about working with a PE firm 2 and the fact that now interest is more expensive for the PE firm. So you got both kind of a demand issue and then also a willingness of supply.

Our next question is coming from David Motemaden with Evercore ISI.

I had a question -- just a follow-up on the centers of excellence and how this could manifest itself in the results over a longer period of time. And Doug, it sounded like reinvestment of the savings or -- would be -- would definitely be a primary use of the gross savings. So the net -- but I guess if I just take a step back and think about how this might change the organic growth outlook for the business overall, I think investors think that this business is maybe in like the 4% to 5% organic grower over the cycle. But I'm wondering if this reinvesting these savings would firmly put the organic growth something above that sort of 4% to 5% over the long term in your view?

So let me take that one, David. This is Pat. A couple of things. It depends on whether or not -- this is the first softening or hardening market cycle thing, if you will, that's really looked different. This is a long hard market we're in. And it goes back to this big carriers now, not unlike what we saw by the way, on the health side. Have really understood their loss costs that are beginning to make sure that they're trying to do everything we can to price out in front of that. And that's being done by line. So you see some softening in D&O over the last couple of years. It had -- it should soften. It was good for our clients and carriers were making enough money. If that continues, then that, number one, I think, will continue to just -- our pure unit growth is better today than it's ever been. Secondly, remember, we're competing 90-plus percent of the time with somebody substantially, not a little bit, but substantially smaller than we are. And every day, when Doug talks about investments, if we get a little granular, you look at what we're doing with Gallagher Drive, what we're doing with data and analytics, our OneSource capabilities, growing that around the world, being able to give you, on a daily basis, what happened yesterday with the audits that we saw come through our system and the ads or deletes from our product -- from our customer base. It's incredible what we're getting. Now we sit with a bunch of clients telling, we start talking about that. The little guys just frankly cannot stand up to that. And so I look at it and go, well, give me some sort of a reasonable market that is going to meet inflation, and I don't see inflation going backwards and then add to unit cost growth. And yes, I think we'll exceed 4% over the entirety of whatever cycles out there, I really do.

Got it. That's helpful. And then maybe some of those comments you made just 90% of the time competing against smaller brokers. You guys are definitely winning in that middle to upper middle market space. I guess, I wanted to just ask a little bit about large account and just get a sense for how you guys are doing there? And how much of your business today is large account? Is that -- are you guys making a concerted effort to grow in that large account business? And is that just sort of like a new segment that you guys could just take more share in?

Well, first of all, I'm going to turn it over to Mike, but let's position this. In the Fortune 5000, there's 5,000 accounts. We touch them all. We're talking to them all every day, and we have our share. And that's the 8% to 9% of the time that we do compete with Marsh and Aon frankly. And guess what, we are really, really good at that. And that's not a new segment. Beatrice Foods who started Gallagher Bassett with us. We've had the likes of very large Fortune 100 companies. I won't mention names for 20, 25 years. We're managing captives in Bermuda for these companies. We're doing global approaches. This is not a new segment. Now I think we're a little bit stronger player in some of that than we used to be. But yes, it's a focus to grow there. But let Mike talk about some of the stats that we're seeing as you look at our general book of business and growth. Go ahead, Mike, on the size of accounts we're writing.

Yes, David, you might recall, I think in the June IR Day, we talked a little bit about this, and I gave some stats and I'll share those again. So I -- we talked -- in my prepared remarks, I talked about sort of the average size account and what we typically see in our overall book of business. But if you look at our takeaways and we measure our takeaways in terms of our new business, 53% of our new business accounts pay us over $100,000 in overall revenue. So that's a business that's paying $1 million-plus in premiums. That is not a small account. It may not fit the profile of the Fortune 1000 or the Fortune 5000, but it is a large complicated risk. And then if you break that down even further, over 35% of those accounts pay us over $250,000 in overall revenue. And so those are extremely sophisticated accounts, $2.5 million to $4 million in premium with very complicated needs. I think what has happened from a strategy perspective is all the investments that we've talked to you about over the past from Drive to SmartMarket to some of the analytics tools that we have, have started to get the attention of that kind of account and of the risk management community. So we've earned the seat at the table to have a conversation. And remember, risk managers, if you break down that Fortune 1000, many risk managers have multiple brokers serving their needs. And they do it on purpose because they want to have a way to not only play them against each other but also have advice that's coming from different angles. And so our opportunity now that we have both reinsurance and Gallagher Bassett and all the tools that we feel we need to compete on any one of those accounts, we've earned that right to sit with those risk managers. And I told you in June, we had come off of are meeting at RIMS and the kind of attention we were getting, the quantity of meetings we were having with many of those Fortune 500, 1000, 5000 accounts was significant. And so the strategy is paying off. It requires continual investment in the tools that those kind of accounts need to address their needs. And by the way, when Pat said 90% of the time we compete against someone smaller than us, oftentimes, they have that 1 account or 2 accounts in that smaller brokerage that are worth $250,000, $300,000 in revenue. Those are really good opportunities for us because we have tools and resources that they don't possess.

We can tell you every single time we buy a $5 million shop, there's 4 accounts that matter. And those 4 accounts are in that range that Mike is talking about. So when we compete 90% of the time with smaller brokers than ourselves, that -- many of those accounts are coming from them, which also helps us in our acquisition activity.

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

I think you've touched on a lot of this health care issue, but I'm interested in the way the inflation numbers suggest health care inflation is flat to down even as the benefits expense, the health care costs for employees, employers are up substantially. You gave some specific categories, higher physician costs, higher hospitals. How is it that inflation is negative, but costs are up?

Yes. Actually, there was an article -- I think, it was in the Wall Street Journal a couple of weeks ago, medical inflation often lags CPI for the reasons I indicated before because they're under contract with the health plan -- the health carriers. To give you an example, I got a stat last week, I believe that when we get a stop-loss renewal, we get it this far in advance, in fact, earlier than now typically for January 1. These are for the self-funded plans and they had their stop-loss insurance over the top. Out the door from the carrier before we begin negotiation, we're seeing an average of about 17% over current year. So that's before we get to work on it and so forth. So this is coming. This is -- everywhere I read, every carrier is saying the same thing, what we're seeing, and that's what we're expecting.

Right. And that will impact workers' comp as well you think?

Well, it's a different mix of what's being provided. Remember, the medical inflation includes a lot of these more severe diseases, disease state, things of that nature, things that came out of COVID complications. When you have workers comp, I'll let Scott talk about that, that it's often a little bit different than that. So Scott?

Mark, this is Scott. The -- what we're seeing right now is probably lower levels of inflation. It's obviously -- we're tied to whether a fee schedule goes up. And I think, as Bill was referring to, sometimes there is a lag there. But right now, it's still low single digits. And, I guess, it's fair to assume kind of like what Bill is describing that in time, there may be an increase. But at the moment, as it relates to the medical side of the comp claim, it's still low single digits in terms of the actual increase. The indemnity side is seeing a little bit greater pressure.

One more thing to add, I should have said this earlier, one of the fastest cost drivers in medical inflation is on the pharmaceutical side. And so we are getting a lot of new business on our pharmacy consulting practice, really finding a way to dig into where the money is within these PBM contracts. There are certain things you can do like limiting the formulary what's available, but there's a lot more to it in terms of the contracting. And that's where our expertise differentiates us from most of our competitors as well. So what [ Scott's world ] won't see is that pharmaceutical impact that we're seeing on the medical segment.

Yes, Mark, one thing just mathematically, you could have, let's say, a 1% pullback year-over-year, but if your pricing is still field -- hasn't been -- hasn't come through the system by 10%, 15%, something like that, a 1% change year-over-year still means you got to put the 10% to 15% through it. And I'm not predicting 10% or 15%. But I can tell you in our own plan, it's 6.7% is what we're seeing is true, true underlying inflation as we look at we're going into next year's renewal season. And that's a little bit of a hope on that.

Yes. Yes. On the wholesale business, I think you said the domestic P/C retail, there wasn't as much renewal premium, perhaps because of the mix issue at 2Q is stronger on property renewals. Similar phenomenon within wholesale or not so much?

Yes. I mean there's key times within the year that different lines of business. I'd add that, candidly, it's shifted over time because it all used to be renewed during wind season and then it really became less during wind season and more pre and post just to get out of that problem time. So it is ahead a little bit of timing, but it's not -- and our business is large enough that it's pretty consistent month-to-month.

And our final question is coming from Charlie Lederer with Citi.

Just wondering on the organic revenue growth bump from ASC 606 accounting in the fourth quarter last year. I believe it had to do with more efficient execution. Is that something you have the ability to improve further and accelerate organic growth recognition. Again, as the centers of excellence continue to get bigger? Or am I not thinking about that through?

No. You're are thinking about it the right way. I think that when you look at the -- we evaluate our assumptions every quarter and not dissimilar to doing kind of reserve reviews that the carriers do. As we get towards the end of the year, and we're starting looking at our budget process, that's where it naturally comes forward about where we're seeing efficiencies that allow us to -- the more efficient we serve a customer, the faster we can recognize revenues. So that's what you were seeing last year. I don't want to call it an unlocking because that's more of a DAC terminology. But in this case, the ability to execute and deliver more at the point of policy issuance date, the faster we could recognize revenue. There's not a concerted effort to be working on that in order to -- for the accounting aspect, but it does naturally happen.

Well, thank you, everybody, for being with us this afternoon. We really appreciate it. From my vantage point as the CEO, I believe the business is in fantastic shape. I believe we do have the most talented team in the industry. We've got great relationships with our carriers. We've got fantastic client service and retention. I'm really excited about our near-term long-term prospects. I hope you saw that today or felt that today, and we look forward to speaking with you during our third quarter earnings call at the end of October. Thanks again for spending the time this afternoon. We'll talk to you then.

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