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

Good morning, everyone. I'm Ray Iardella, and I'm Head of Investor Relations at Arthur J. Gallagher & Company. I want to welcome everyone to our fourth quarter 2023 Investor Meeting including those of you who are listening in on the webcast. So in lieu of each business leader given a presentation, we are going to follow a very similar format to [Technical Difficulty] on 3 topics today through group fireside. Towards the end of each discussion, we will open up for Q&A for those of you that are here in the room. [Operator Instructions] We handed out our updated CFO Commentary document a few minutes ago and we posted the same document to our website at www.ajg.com/December13 material. An 8-K regarding this information was filed this morning as well. So before I get started, I'd like to make a quick legal comment. Some of the comments made during today's meeting including answers given in response to questions may constitute forward-looking statements within the meanings of the securities. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. You should refer to our most recent 10-K, 10-Q and 8-K filings including our CFO commentary for more details regarding such risks and uncertainties. We do not assume any obligation to update any information or forward-looking statements provided today. Okay. So with that out of the way, I'm going to hand it over to Pat Gallagher, our Chairman, President and CEO.

Well, thank you, Ray, and thank you, everybody, for being here today. It's great to be back in person. I think one of the benefits of being in person is that we do have some chance between some of the sessions, whatever catch up with old friends. It's nice to see some faces that I've seen for many years as we do this. Happy holidays to everybody and those of you that are on the webcast, thank you for joining us this morning. The format, as Ray said, is going to be a little bit different than what we do in our normal quarterly the benefit, I think, of being in person. We'll do what we did last year, which, as Ray said, will be more of a kind of fireside chat approach. And I hope what you'll see is that the level of excitement that is around and supports our strategies is not diminished in the least. I mean we are one turned on group of people and I think you'll see why as you come through. And I think this does come through when we do our quarterly catch-ups with you virtually from our offices in Rolling Meadows, but I do think there is something to be said for being in person. I look at some of you in the audience and I realize we go back a lot of years. And it's pretty exciting for someone like me to be able to look at you and say, Gallagher is now at a place. We can tell our team that there's no risk of any kind of any size, anywhere in the world we can't take care of. And that's from the brokerage and consulting and risk management perspective. That is a place that we've been building to for almost 100 years and we're there. We're now one of the top players in this industry. There's no dispute about that as to whether we can handle an account or not. And one of the things you'll hear as we go through the day is that -- or this morning, the cool thing about this business is that there's about $7 trillion of premium in the marketplace. That's all global premiums. It comes from the Insurance Information Institute. We'll touch about $100 billion of premium. And here we are one of the top players in this industry with very, very deep expertise, as I said, any risk anywhere in the world. And we become a powerhouse and for me to stand up and look at investors and then say, what's the long-term opportunity there. I had the opportunity yesterday afternoon to spend time with our regional young team. These are our up-and-comers. And to look at them and say, what are your opportunities as a group of people? It's really, really exciting. I got questions from them -- okay, so we're here now. What are we trying to do? And what's interesting to me is if you take a look at what we've said to you historically, it has not changed. We're trying to do 4 things: try to grow organically every single day. And that really is comprised of 2 activities. We don't lose accounts, worked hard to keep accounts. We want to take care of our clients. Our clients are our first stakeholder in our mission statement. Secondly, we're a new business machine. There is absolutely nothing wrong with saying we're out there selling every day. That's not taking advantage of people. It's showing them what they need to know. Thirdly, we've focused very heavily on productivity and quality. What we do for our clients has to get better every single year and we've got statistics around the fact that we're doing that. And lastly, in my estimation, the most important thing about our success comes down to our culture. I'm very proud of the fact that today with almost 50,000 people around the world, this year, I've been in Auckland, I've been in Pune, I've been in Bangalore, I've been in London, Birmingham, Dublin and Prague, tell you that the culture globally hangs together. Not an easy thing to do, not done by one person or one group of people. It's a group of people around the globe that believe in the culture and recognize that it's the thing that defines us. So let's talk a little bit about what we're seeing on a PC basis around the world. We're continuing to see increases in pricing and I'll introduce the panel in a second. I think you'll see that there's not all that much change to what we're seeing actually. And what's interesting is, today, the data and analytics that we have available, we can tell you these statistics and we know they're sound as of yesterday. We can tell you any account that's renewing anywhere in the world by any line and we know exactly what's happening. So we are seeing premium increases in the fourth quarter. Demand for benefits, very strong. Anywhere you go, you hear the same story, can't get people need help. The U.S. labor market remains very tight. And because of that, our clients are focused on how am I going to keep and retain the best folks. When it comes to Gallagher Bassett, our risk management services, again, I think the quality that we're putting out, the fact that we can show that our outcomes when we handle a claim are better than our -- than the competition. And better, frankly, than most industry insurers, it leads those to start paying attention. I've been saying for years that I believe our greatest opportunity in the very near insurance company outsourcing and Scott will talk a little bit about that. And then you talk about the economy. It's interesting. If you go back a year and many of you, I think, were probably listening to this conference call, people were grilling me about are we seeing a recession? Are we going into a recession? What's going on with your small accounts. And again, our data and analytics has gotten stronger and stronger. And I can say, I read the same newspapers you do. But our clients, our middle market clients are having endorsements and having audits that are positive. And now the look back at the Wall Street Journal and the like is, guess what, we were right. Those companies have done well and they continue to do well. So when I take a look at where we are and when I take a look at how big a share we have of the $7 trillion, I see no limitation to our growth. In fact, if anything, I would argue to our people, as they did with our young team yesterday that our growth should accelerate that there is no reason why today with the fact that people know us, they recognize our expertise. Our expertise in our niche capabilities is second to none. If you want to talk to us about real estate, really just not profit construction, et cetera, et cetera, et cetera, and by cover, D&O, E&O cyber. There are no small brokers out there that can talk their language. They can do it for the client. Our larger competitors can for sure, but this $7 trillion is it handled by them. 90% of the time when we compete in the market, we compete with somebody smaller. So I think that if you take a look at the year, we should be pushing the 10% that we talked about at our last conference call for this year. That's combined risk management and organic on the brokerage side. I think next year, I think we'll see 8.5% to 9% organic as a broker. We're still maintaining that kind of guidance. And I think you'll see closer to 15%, maybe more than 15% on the risk management side. And I think that's a very, very strong position. So I think that next year, organic in the brokerage side rather should be this -- right in that 7% to 9% as well with 9% to 11% on the risk management side. So let me be clear about that. This year, we'll finish as we said, closer to the 8.5% to 9% on the broker side, 15% in risk management, next year it will be 7% to 9% in brokerage 9% to 11%. When you get to the panel, you're going to hear about our approach to mergers and acquisitions, and I think that's a huge differentiator for us. I think that when you see the people we're buying, people will ask me many times, how can you do so many acquisitions. Most of these are tuck-ins. Yes, we do get some good price around Eastern, Cadence, M&A -- M&T rather. And those are bigger deals. But we're clicking on every week people that want to join us and that will roll into a place that can be their final home. And when you compare what we're selling to a seller versus a private equity sale, it's starkly different. And that doesn't mean that there aren't a lot of people that still choose to go to private equity route. They don't want to change. And that's what we're -- that's the competition. Why sell to Gallagher, you're going to change your agency system? You're probably going to want you to do an internship, you might have to work with the people in India. The people that embrace that to join us and we give them the opportunity to jump to a new level of competition. Those that don't want to change, will gravitate to private equity, and then I look at that and say, well, it's a little bipolar. Why are you selling that to change? So I think those conversations put us in an interesting spot in the marketplace. And I think we can continue to see the acquisition level increase over time. Productivity and quality improvements every single day measuring that. I'll give you one example. I ask this to brokers that we bring through the merger and acquisition process all the time. Tell me what your quality level is on the certificates of insurance that you issue. Whether this is a $2 million agency or a $25 million agency, there's not one of them that can answer that question. They can't tell you because they don't measure the kind of feedback they get from clients as to whether the search were wrong. Do they have to reissue. They don't count reissuances. Well, we do. We'll issue about 3 million certificates of insurance out of India and our air rate is less than 1%. We know that because we measure every single hour and we do measure those that we have to redo and there aren't many. Now okay, what does that mean? Does that mean anything? Well, it does. It means a lot to a client. We're paying that much attention and that level of detail to certificates of insurance that we issue, how do you think we're doing on the insurance. I think that's important. I think that's something that people like. And what it's also done is allowed us to improve our margins over the last 5 years substantially, both in the Risk Management Division as well as a broker. So we're really, really focused on operational excellence and I think we're a leader there as well. And then, of course, I've talked about culture, which, to me, is the single greatest differentiator. And I'll tell you, as I get older, I am even more firmly believe that every single successful organization of any kind, I don't care if it's your church, your club, school district that you're in, the people you're hanging out with the differentiators culture. That's why we belong to things. And we work on that every single day and I believe that we will continue to differentiate ourselves that way as we go from 50,000 people to 100,000 people. So I think the comments today, obviously, we have a very talented team, a strong track record of organic growth. We've got, I think, initiatives across the board to continue to drive that organic growth. We've got a very strong merger and acquisition strategy, an excellent pipeline, literally dozens of letters of intent signed or in process right now. And again, Doug can get into the numbers, you've got the CFO data. I see that as just a continuation of our strategy over all these years. How can you do 50, 60, 70, 80 acquisitions and hold the culture together? How do you change their culture to fit you? We don't. A big part of our whole M&A due diligence is around that culture. Are the people going to fit? Are they going to stay? and I think if you look at our the number of companies we have to dispose of after the fact, our error rate is very, very, very low. I'm very proud of that. So before I turn it back to Ray, let me just quickly introduce the team you'll see today, Mike Pesch is here and he will focus on our U.S. retail P&C. Patrick Gallagher will hit on our -- outside other than the Americas on our global retail. Joel Cavaness, who you all know, will focus on wholesale and our program business. Tom Gallagher will focus on London Specialty and Reinsurance and Bill Ziebell will focus on our HR consulting and broking business. And Scott Hudson will talk about our third-party claims. And after each of those, we'll have a chance for Q&A. And as Ray said, at the end, Doug and I will also wrap it up with Q&A. And it's great to see all of you. I hope that you find the time to be really well worth it. Thank you for spending your morning with us.

I was getting some notification that there were some issues with the mic and the sound. So I just want to make sure every had heard of Pat's comments this morning [Technical Difficulty] I think for full year '23 organic combined Brokerage and Risk Management segment pushing 10% and then brokerage in that 8.5% to 9% range and risk management more than 15% for full year '23. Then as we look ahead to next year, no change to what we're thinking in terms of guidance, brokerage segment between 7% and 9% organic and then risk management segment between 9% and 11%. So I just want to make sure everyone can hear that clearly. All right. So moving on to the first panel discussion on market conditions. So thanks, everyone, from the team for getting up here. We'll jump into the P&C side. Mike, do you want to talk a little bit what you're seeing on the retail side in the U.S.

Yes, Ray. Good evening, everyone. So here in the U.S., as you've heard from previous meetings, we believe that the pricing challenges for our clients still exist. And I'll share a quick example at the end of this -- of that. But through the fourth quarter, we're seeing about rate and exposure combined, about 9%. If I break that down by a line of cover, properties still up about 18%, umbrella 13%, GL7 and work comp up 3%. And we're still seeing some relief for many of our customers in D&O and cyber. But the punch line here really is that we're seeing a rational marketplace from our carrier partners. And the example I'll give is if you've got tough losses and I was just been in our New York offices all week and one of our top account executives, I was stopping her office and she was talking about a renewal that she had for January 1 and is on guaranteed cost. It's got tough loss experience and they are looking at about a 35% overall increase from a rate perspective year-over-year, and that's because it has some really tough losses. The reverse of that is if a client has good loss experience, we're seeing far less than that. So it's rational. But overall, rate exposure, 9%.

Thanks, Mike. Anything to add, Patrick, on Canada, maybe U.K. and Australia?

Yes. I think carriers are behaving rationally in Canada as well. The Canadian market burned about 2 years ahead of the U.S. market. So it's kind of out ahead of the United States, but they're certainly becoming very rational. Overall, the Canadian renewal premium changes are mostly account specific, as Mike just said. But I guess you'd say in Canada, on a combined basis, you're looking at more like 5% rate and exposure, properties up around 5%, casualty coverages, GL, umbrella and commercial are up in the mid-single digits and then D&O is down in the teens as we've kind of seen in the U.S. as well. If you look at U.K., the renewal premium changes are up about 8%. That's a bit lower than the 9% to 12% that they've had for the first 3 quarters for 2023. Property is seeing renewal premium increases of 10%, driven by inflation and carrier pushing for rate adequacy. D&O and professional lines, again, down to low mid-single digits. Other major coverages are seeing renewal increases in the mid-single digits. Australia and New Zealand, a little bit better story. I mean Australia and New Zealand is blending out at about 12%. That's New Zealand who's had all the losses at about 17% on a blended basis while Australia is closer to 8%, so they kind of blend out at 12%. New Zealand, nearly all lines are in the double digits, nothing under 10%. And most lines in Australia are up mid-to-high single digits. So we're seeing a pretty rational market throughout the globe in retail and that's good for [indiscernible].

Tom, do you want to hit on London specialty and reinsurance?

Good morning, everybody. When you look at the London specialty market right now, there's a floor on rate coming down. There isn't the kind of momentum that we've had over the last couple of years. So not a lot of upward momentum on the pricing of it. We look at North American cat still very strong. They're getting rate for North American cat. The insured values are also driving it because of interest rates in the U.S., the rates are coming up alongside of the exposed property. We're seeing competition on D&O professional lines, financial institutions and cyber liability, there's competition in those. Not that the rate is coming down but you can get a decent price in it. Casualty rates remained flattish, but there are concerns as they look into America. English a very worried about the social inflation in America. They're very concerned about where their casualty books are at the moment. Moving to aerospace, it's currently the busiest time of year for us right now. We've got a huge portion of that book of business renewing at 12.1%. And it's rates are up, but it's too early to find out exactly where everything falls.

Joel, anything to add on the U.S. side?

Yes. On the E&S side, the world in which we work, we continue to see premium increases overall on an average blended around our business. We're seeing about 12%. It's higher in open brokerage, the individual risk business, where we're seeing premium increase about 15%. When you move down to our smaller delegated authority binding business, we're seeing overall across the country, about 8% in that particular business. Property for us. We do a lot of North American cat tough property placements. We continue to see significant overall increases. Now that this, of course, includes new business, includes renewals everything else. But that business and properties of about 28% this year. And we're not seeing a significant change in those very difficult to place cat property business like Tom talked about. Umbrella, up about 8% overall. We'll continue to see that as carriers look towards earlier years in development in their excess and umbrella book. Commercial and personal auto continue to see significant increases in the difficulties of jury verdicts of inflation costs. And I don't see that stopping anytime soon. It's still a very, very difficult line for the carriers. Of course, D&O and cyber kind of flattish. We believe talking to our carrier markets, which we spend a lot of time with that we have kind of reached that floor in those lines as things are beginning to maybe creep up a little bit here and there. Those are the lines, up about high single digits in our space. Obviously, the -- we had a fairly easy hurricane season in 2023. I haven't seen any forecasts for 2024 yet, although I always question those. But around the world, I was reading an interesting statistic just the other day, that there's $1 billion event, weather-related event around the world every 3 weeks. And if you go back into the '80s, those kind of events were happening every 4 months. So if you look at that broadly, and of course, the United States is just United States, not around the world. But that's pretty significant when you think about the insurance industry in the future. So my comments.

Thanks, Joel. That's probably a good segue into reinsurance. Tom, any comments on what we're seeing on reinsurance in one-one renewals?

You look at Q4 and it's a very quiet time because everybody is spending time getting ready for one-one. On top of that, the conditions, the rates and the terms are going to vary depending upon geography and the nature of the business that they have. With that said, we're confident of adequacy of the reinsurance capacity to support the one-one renewals. It's going to be there. Everybody is confident that it will be there. It won't be in the same kind of form it was last year, just 12 months ago. Reinsurance marketplace, we expect continued firm pricing because primary insurers have been getting hit hard all year long this year. With the retention rates up, with the rates of the reinsurance premiums up last year, it's been a difficult year for them. We could see more demand for cover as we come into 2024. Looking at the specialty side of it, it will be orderly. You're looking at political violence and terrorism related covers gaining some momentum in terms of rate. When it comes to casualty, carriers appear to be taking a very, very cautious view. Overall, we see strong demand for reinsurance, clients looking to strike the balance between retaining more and making absolutely certain that they protect and maximize their earnings. It hasn't been a huge influx of new reinsurance capital into the marketplace at this point in time and we don't see it at one-one.

Patrick, any flavor on ILS and captive that falls under you?

Yes. Artex is the brand we use for captives and ILS, but we kind of talk about it as alternative risk. The market continues -- the market conditions of the standard retail P&C continues to drive a ton of interest in alternative transfer products. So we think both single-parent captives and group captives have a lot of runway in '24, nice growth in North American risk. And in addition, we do some distressed property now in the alternative space, which has been a good product for us throughout '23, which we continue to see opportunity in '24. '23 has actually been a very good year for cat bond issuance and we don't see a slowdown of that either headed into '24. We're seeing capital from institutional investors backing the balance sheets of traditional reinsurers. So that -- they want to back somebody with a strong record and they're using more cat bonds than they are ILS. So while we've seen limited hedge fund interest looking in to capitalize on the hard retro market, there are -- we've seen limited. There aren't any major institutional investors that we are seeing enter the alternative risk space. So essentially, what you see in '23 is what you get in '24.

Thanks Patrick. Bill, do you want to maybe hit on the benefit side and what you're seeing?

Yes, sure. U.S. medical inflation has been on the rise during '23. We see it increasing to '24 as well. Fully insured, we're seeing rates coming in 7% to 9%. And then we're on the stop loss side, that's the insurance for self-funded employers, coming out of that -- come out from the carriers, the rates are coming in 17% to 18%. And there's a lot of reasons for all of this. I mentioned on some previous investor calls but you have a lot of labor cost increases in health care. It was burned out during COVID. You've had some walkouts in some hospital systems across the country, a lot of labor unrest and keeping those folks at work in the hospitals obviously costs money. And so that's a big driver of that. We also have a lot more expensive claims happening over $1 million happening quite a lot these days. You have new gene and cell therapy drugs coming to the market. There's a lot more procedures being done. If you think about COVID era, people weren't going for their normal routine check-ins and diagnostic tests. Those were spike coming back in '22-'23. And so what ended up happening is these contracts that the healthcare providers have with the insurance companies renew. Those are coming back into the rates we're seeing. So a lot of things that we see are going to continue going forward into '24 in terms of medical, continue to be a hard market for us. In stop-loss, again, I mentioned before that's an area where you're seeing more and more employers go self-funding and they're using more and more premium as well. So we see medical hardening into '24 and beyond so.

Do you want to touch on the consulting and time and life space as well.

Sure. So our consulting business continues to be in demand. It's about 20% of our revenue. It's not as hot as it was perhaps a year ago. But we're working in industries like healthcare and others that are really rather public sector that still are very hot for us. There's a lot of demand for our work to help them, keep employees engaged in their seats and so forth. So we're doing things like compensation studies. Do we have the right job descriptions, pay ranges. What are the incentive plans to keep people working and motivated. The retirement side is still very robust. A lot of employers really sort of looking at financial well-being during this war for talent that was often used the phrase, really how to get engage those folks beyond just having a plan or a benefit, really helping the employees understand what these benefits really mean. So the consulting side still has a lot of demand. We still have a nice backlog and a nice pipeline as well going into '24.

Great. Scott, do you want to hit on what you're seeing on the demand side for your services?

Yes. I mean if you just look at the last couple of years, our growth has been outstanding. And so I think it's fair to say demand is quite high. It's probably as much about what we're doing inside Gallagher Bassett than just the market. If you -- and it's across all segments. You've heard me talk about our risk management clients, our traditional clients, carriers or alternative market clients, our captive business and our public entities. And they're across all segments, we're seeing very nice and continued demand would expect to see that into the coming years. A couple of areas that I think are exciting for us. Pat -- I think it was Patrick who mentioned the alternative markets, Artex, the captive operation inside Gallagher. We are seeing continued moves into our captive clients, Artex being one of them. That's exciting. We're also seeing new interest from runoff-type carriers. Some of the insurance companies are moving books of business to them. We've got conversations underway, which I think is exciting. I think when you just sum it all up, what we offer in terms of -- I've said over many years that it's all about delivering a superior outcome, which, in essence, in inflationary environment, in a rising cost environment, our clients are coming to us to help us control that. And I think we're doing a very good job and as a result of that, the demand for our services is quite strong.

Maybe, Scott, do you want to talk about what you're seeing on the claims side? I mean Gallagher Bassett handles what $12 billion worth of claims a year?

Yes. Significant volume of claims kind of across all of the different markets that we operate in. You have to -- you have to divide kind of the growth of claim counts into 2 pieces. There's the new for us. As I've mentioned, just the growth that we've seen over the last couple of years is driving meaningful increases in claim counts. And then the thing we also look at is what's happening within our existing clients, whether we're seeing any sort of trends just underlying trends in their businesses that's driving more or less claims. And from that standpoint, it's probably about 1%. So that is helping us a little bit, but it's not a significant driver of our growth. Some of what we do too is help them introduce practices into their businesses that control claim activity and claim frequency. So in some respects, we're in assist in that regard. The other thing, I think, Ray, that is probably worth mentioning, I think there was a couple of folks may have mentioned medical cost inflation. That's a question that comes up time and time again. If you look at our book of business, which is quite large, we're probably seeing a couple of points of inflationary growth that may be slightly below what the broader trends are. I think we look at that as the value we're delivering, being able to control it in ways that maybe other organizations can't see, so there are benefits that we're bringing in that regard, but we are seeing inflation. Another point to make there is that doesn't necessarily translate into greater value or greater revenue for us. Most of the way we price is independent of the medical inflation. So although it may be happening within the claim activity for our clients isn't a direct correlation to increased revenue for GB.

Great. Thanks, Scott. Well, maybe we'll move to Q&A. If anyone has any questions on market conditions.

Ryan Tunis, Autonomous Research. I guess I just had a couple. First one, on the health and benefit side, obviously, yes, I mean, there's a lot of pricing, but just thinking about how you guys are compensated from a unit economic perspective, is that business more dependent on head count type numbers? Or are you compensated similar like P&C brokerage where those rate increases are flowing through to better organic?

Yes, it's a mix. We have certainly on the lower end, more commissioned in terms of the size of the employer. Larger we go, more times, it's more of an annual fee type of arrangement. Majority of our stop-loss placement is commissioned. So there's some help there. So yes, it's head count and rate that goes into the compensation side for us.

Got it. And then on U.S. P&C, talked about 9% increase in premiums. A lot of that's exposure. Just curious on the exposure side, is that pretty much all like the rate within property acting like exposure? Or are there -- I guess what would the exposure increases look like if you carve property out of that mix?

Yes, Ryan. So I said 9%, which is a combination of rate and exposure. So we look at that pretty regularly. I would say exposure is giving us about half of that increase in rate may be the other half overall in terms of market conditions, property is still a challenge, as you articulated just now, in terms of making sure that our clients are properly and adequately covered, considering inflationary costs of everything underneath it to rebuild. It's still a pretty big challenge. But we're still seeing, even on the workers' compensation side, we're still seeing wages increase, right? So even though we're comp from a rate perspective, I think I shared 3% might be either flat or down-ish when you combine that with exposure, you get to 3%. So it has a balance that way. So let me know if I addressed your question specifically. If you take out property, I'm not sure I have an exact answer for you what that 9% becomes because we are seeing exposure increase in almost every line of coverage. I think Pat indicated, I mean, we're not seeing our clients go backwards from a sales perspective, which is predominantly what drives GL. Auto perspective, cars aren't getting any cheaper, trucks aren't getting any cheaper.

Ryan, if I could just clarify one thing as well. Our compensation, we're paid to actually mitigate those increases, right, giving them strategies and reducing as much we can, cause shifting things of that nature, but plan design finding better places to get outcomes that are lower cost. That's part of what we do every single day for our clients. So it's not a one-for-one translation into a lift in our revenue.

Mark Hughes, Truist. Also for Mike, it seems like your description of the GL and umbrella pricing was a little bit better than what you described in 3Q. Is that a fair assessment? And what would be driving that?

In terms of maybe a bit softer?

Yes, the increases you gave, I think you said GL up 7%, if I got it right, it was up 6% in 3Q. So it just seems a little bit faster.

I think, Mark, I think that's a reflection of good accounts that haven't had loss experience starting to get some relief. While social inflation still exists, it's still a challenge. We were at a dinner last night talking about it with one of our key trading partners, they're very concerned about their book of business, especially in the excess casualty area. But overall, those good accounts are seeing some relief in those casualty lines that cover and as Joel articulated, on the property side, while there is still a lot of things happening and occurring every single day, we did get a bit of a break in this year's hurricane season. So we are again, if you have good controls in place, good risk management, you can see some relief. So that's really the reason for some of the softening.

And then Pat, if I might ask, you were talking about the economy, and you seem to be as bullish, but I just wanted to clarify, you're not seeing any kind of slow down. You're seeing premiums, auto premium solar positive, but are they as positive?

[indiscernible] and endorsements continue to be positive every week.

And if that as positive as they were or how would you characterize that?

[indiscernible] when people were talking about the retention, but we were not seeing the slow down. So I can't give you an absolute percentage.

I'm sorry. I think everybody on the call heard Mark's question. We are not seeing a slowdown. I can't give you details on middle market in this geography. What are the audits here and there. But when we're seeing is overall about the same increase in audit income. To Mike's point, which you've got is part of the question earlier was what's driving exposures. Well, of course, clearly, property is one. But the other is sales are up. Sales and payrolls are up, that's exposure units. So I'm not going to get granular enough, Mark, to say that 6 months ago, our audits were up 3% and now they're up 2%. The trend is continuing about where it was before. So the business is out there are doing well. Interestingly enough, back to Bill's point, I think the thing that's constraining them is employee count, employee retention. And so I look at it is very positive for us.

Meyer Shields, KBW. So 2 quick questions. First, for Joel, one of the phenomena we heard over the course of 2023 was cat-exposed property moving to the specialty markets. And I was hoping you could talk about how much more of that movement there is still to expect in 2024? Or is that going to be a little bit of a challenge to growth and then a broader question, whether we're talking about Midwestern companies that had terrible property experience or just the risk of adverse development, what's Gallagher doing to make sure that the companies you place business with are as financially stable as they might appear in the rating agencies?

Yes. So I'll take number one and then we'll figure out who takes number two. Look, I would tell you, we'll divide that into kind of 2 answers. One, is very interesting. Our submission activity, we track it every 7 days, so 7 days over [indiscernible] days and 7 days over last year's 7 days, blah, blah, blah. A lot of data inside of our larger business so that we can look at for trends, we can look for changes. Property submissions continue to increase. It is still, by far, our leading line as far as growth. We don't see that changing. The standard markets are still behind in their ability to file and get rate generally across a fairly large segment of their business. And so it is naturally continuing to flow into the E&S business. And as I said earlier, unfortunately, we had a fairly large event just in Tennessee this past weekend. All of those things make underwriters -- admitted market underwriters had spent. When you have large swaths of properties in a particular location that have F3 tornados, makes everybody worry and so when they were worry, they don't right. When they don't right, the business has to get placed and the business gets moved over to our sector. Let me break that into a second area that I actually meant to mention earlier. The personal lines space is absolutely flowing into the E&S. We've always had a certain portion of our book, but it would have been really more considered low value vacant manufactured homes. That kind of business tended to flow into the E&S really, really interesting that high value, high net worth that the standard markets have generally run from over the last few years is now really flowing into the E&S space. And it's actually, I will give the example. My home, I have a home in Louisiana, I'm in the E&S space. Now it was a lot of fun because I sort of because I pay a lot. But it's got a fun I got the binder, you know whose signature was on the binder, mine. So it's like a wave and I think I paid too much and have got somebody to get commission on this. But that kind of business in my neighborhood is very similar, Southeast homeowners. If you read articles about Citizens of Florida, Citizens of Louisiana, some of the things are being looked in to that particular risk profile, it kind of leads to your next question. And I don't know if Mike wants to touch on the -- how we view our the financial wherewithal of the carriers we trade.

I think you in your question you said do you do anything above and beyond leaning on the rating agencies? And the quick answer to that is we lean on the rating agencies. I mean that's their job is to guide us. Now I will tell you that we are extremely quick to notify our customers. We can tell you every placement back to our data driven platform in Gallagher Drive. I can tell you every placement with every carrier. So when there is challenge or we hear about or an announcement, and we do get that message out, not only to our producers but to our leaders and then ultimately to our clients quickly to start to pivot and make those decisions about what to do with that placement, if anything, at that moment but those folks are -- that's what they're paid to do. That's what they are good at and we lean heavily on that. And we have very high standards in terms of allowing our producers to place business with certain carriers, if you fall underneath that rating, that AM Best rating, you have to get approval, not only from the customer but approval internally, to make sure that it's something that the client understands going in.

David Motemaden, Evercore ISI. Just a question on the financial lines and D&O. It sounds like similar conditions. I'm just wondering, has that pressure there lessened at all? And how are you thinking about that going into next year?

You want to touch first?

Sure. Talking in we get a lot of information, of course, from our carrier partners on where they're viewing particular segments of the market. Most have told us that they feel like they're at a floor that we're not going to see continued significant deterioration. My answer or my input into that overall is but there was a fair amount of capacity in those lines. And of course, over late '22 through '23, you saw a lot of that capacity being unused because the IPO market was pretty lackluster. No more specs and people were getting just a ton of rate in premium out of specs and de-specs, all of that kind of turmoil coming out of, of course, coming out of the COVID years. And when all of that leaves the market, you still have underwriters who want to utilize the capital that they have associated with that line that did cause some fluctuation in D&O and it did cause some fluctuation and cyber became popular again where people had exited, then they came back in it. So it's truly a supply and demand issue.

You take a look at the specialty business in the U.K. and the team is really saying that their feeling as though rate reductions are falling away that it's we're reaching a bottom or a flattening out the rate structure in it. A good example of it would be the cyber. I mean we've actually had a couple of carriers just pull ranks, just so there's just too much money on it, and we're out that just by doing that, it's having a web just putting a little bit of a floor on it.

I think carriers on the cyber side, interesting again, conversation from yesterday. They're very concerned or looking at a large event that goes across their entire book potentially. So there is some concern about that, so people viewing their aggregation of a multiclient loss across a broad stream sector. So people are starting to maybe look at that a little bit closer.

More questions in the room? Greg?

Greg Peters with Raymond James. Good morning, everyone. So aside from the couple of lines where you cited there's downward rate pressure. It seemed like the general consensus is continuing positive rate momentum. Maybe you can speak each of you can speak to what kind of rate fatigue your customers have. And I have to believe the insurance budgets for your customers aren't going up as much as the rate is. So maybe you can bridge the gap for us.

Yes, I can start. So I used that reference yesterday or earlier about the client I was talking about with one of our account executives and they're on a guaranteed cost, it's 35%. So we did not get into it in terms of what their budget was. But 35% rate increase is significant for any type of customer. So I'll get into it when I'm talking about CORE360. I mean it's not just about. They may have to buy a guaranteed cost. It may be the industry that they're in and it's a pass-through cost because of the trading relationships that they have. But looking for ways to carve out by taking on some risk and laying off whatever is left to the insurance community to reduce that overall spend. Now yes, you're taking risk to offset the guaranteed cost rate increase to 35%. But I think directly to answer your question, look, it's all about communication. That's really what it's about as a producer, as an account executive in the retail P&C space, making sure that your CFOs and CEOs are well equipped and understand what's about to happen. And that comes with understanding where the losses are trending. Nobody wants to pay more or may have fatigue, but if the underlying losses are poor and there's an explanation for what you're going to do. We're going to do our best in the marketplace but having that early communication creates less fatigue in terms of understanding what's about to happen. But of course, nobody wants to get year-over-year 15%, 18% increases. So it's our job, as we've said many, many times to figure out through either program structure or better risk management strategies on how we can help them mitigate that expense.

You look at the personal lines, my homeowners, your homeowners, we all have rate fatigue. It just keeps going up year after year. And yet, what we find is that if we are checking it on our own individually that rate structure is around the industry. And so while there is fatigue, it's because everybody's got it. What we've done inside of the company on a couple of levels, first by being completely transparent with our clients. They know what we're making, right? And we've had that way in the U.S. for the last 15 years. They know exactly what we are compensated. So it takes a little bit of the question out of it. The second part of it is the data and information that we're providing our clients to date through Gallagher Drive and the other tools that we have enables us to do something more than just tell a story. We can actually show the facts of what's going on by care inside of their space, inside of their geography. And so when you do that, the other is fatigue, you have the ability to explain to your client. For us, one of the things that we really concentrate on all the time, retention. And to what Mike talks about, it's communication, it's data, it's the opportunity to have great forward-looking information for the client that provides the opportunity for us to renew it.

Joel, anything or do you want to move on to next.

Fortunately for me, that's what I like about wholesale space. I don't have to give the bad news to the client or to a retailer. I think what you've seen is over time over the course of the last several years, there's a lot of ways to mitigate. People that are in the high to the soft market. They were buying umbrella limits of $100 million just because it was essentially free. I used that word, it wasn't free, but it was cheap. So people when prices go up, like rates go up, people tend to narrow those limits down to something less than $100 million, maybe $50 million, maybe whatever. Again, same thing in property, deductibles go up, especially hurricane deductibles or the limits at which they purchase might be less. There are certain customers that we both have or we have independently that they say, look, the budget's X go place what you can get for this. You saw that a little bit in municipalities because especially in the southern states. But I think that it is -- we went through a long period of time where we were always heroes because we delivered reduction and they're all caught up. And I think if you go back and kind of trend over a period of time, adjusted for inflation, maybe it's not as bad as it seems.

Thanks, Joe. So maybe we're running a little bit behind schedule, but maybe moving on to organic growth initiatives. So it's a good overview of what we're seeing in the market. But regardless of what the market conditions are, I believe we have some great strategies in place to grow over time. So maybe, Mike, do you want to start talking about CORE360 and sort of the PC value proposition?

Yes, Ray. So it really kind of fits in with that last question because Tom was suggesting it, we monitor our retention. And in a hard market, back to the kind of fatigue idea, we see our retention historically speaking, slip when there's a hard market the following year because the client was upset. They were upset with the news that they received and they take us to market or take competition the following year. That is historical records going back to 2001, the last real hard market. In this market, we have not seen our retention slip at all. In fact, it's improved in many areas of our business. And I think that's a testament to having a value proposition called CORE360, where we are communicating effectively with our client, where we articulate a strategy, not just simply around buying or procuring insurance around the other things that drive their cost. Uninsured and underinsured exposures, loss prevention and claims, contract review program structure, I was mentioning earlier, having that systematic way of articulating that to our customer gives them great confidence that we're doing the best thing possible for them in the marketplace. And CORE360 is not just a U.S. thing. This is a global thing. And why is that important? Because when we work on much larger risk management accounts that have exposures overseas or elsewhere across the globe. Speaking the same language about what we're going to do for that customer is critical. And it also allows for us to look at where we need to reinvest back in the customer. So things like Gallagher Drive and other things that we've built over the past 5 to 7 years, come from us looking at the 6 key cost drivers in CORE360 and say, you know what, from a program structure standpoint, we need more data to help support our clients' decisions on whether or not they want to take a retention or not take a retention. And so it helps us internally on where to invest, it helps our clients in terms of understanding what value we bring to the table and it helps us as a company speak one common language. And so that's why it's critical and Bill has the same thing with Gallagher Better Works, which I think he's going to talk about as well.

Sure. So yes, Gallagher Better works. It's how we go to market with our clients. If you think about an employer, we're trying to help them attract and retain people, the talent they need to be successful at a sustainable cost structure. And so those levers go way beyond just employee benefits. It is our biggest and it's one of the most important things that we do. Benefits is very regulated. It's very complex. And so we help navigate the compliance issues for our clients. We bring the financial capabilities to project what the rates will be. We are good at getting back on the carriers on the rate funding solutions. That traditional employee benefits business is the largest segment we do and it's universal in every country that we're working in. Obviously, in the U.S., medical as much more premium than other countries like the U.K. and Canada and Australia. And so that's where we spend a lot of our focus on energy. Very similar to GGB, we have experts age of the 3 areas that we work in. So the employee benefits, if you're a consultant in that space, you don't get to go over and dabble on 401(k) plans. And if you're in the 401(k) side, you can't go and try to do a compensation study. So employee benefits is one of our 3 legs. The another one is the financial retirement services. If we find your typical defined contribution, defined benefit, retirement plans. And we have actuaries [indiscernible] to get into it, complying with that. There's different compliance regulations over there that we have to deal with as well. Obviously helping the clients, navigate fund fees and fiduciary responsibilities, but also helping them engage our employees better and better. During COVID, we saw a big shift towards financial well-being, not just having a plan but helping the employees live within their budgets, save retirement, creating more financial acumen and that's been a big demand for us, and we're having a lot of success with that as well. And we can also take the employee when it's time for them to move over to Medicare and they can still be working for the employer, by the way, go on to Medicare and go that right as well. We have capabilities from beginning to end on the retirement space. In that financial retirement, services space is also where you find our executive life business and that's become a really big part of our value proposition to a lot of clients. Not only is it tax beneficial to the employer, but the employee as well in terms of ways to retain top talent and so forth. So you've heard the last couple of years, we've got a couple of big life sales. This is in that space. So that's the financial and retirement services area. And the third leg is more on the HR compensation consulting that's where you find the compensation analysis we do for employers, wage and class, executive comp, communications we put into this bucket as well. That's a very large business and growing for us as well, really helping larger employers communicate and engage with their employees, what is the value proposition? Why do you want to work at XYZ company and what's in it for you and those types of things. So it's not enough to have the solutions, the benefits in the compensation, but how do you actually explain it and engage the employees so they really value that employer versus jumping ship for a few dollars more down the street. So that is Gallagher Better works in a nutshell. Basically, we try to tell our clients. If you have a people question, please ask us. We'll see if we can help you. And if not, we'll tell you why maybe someone we can recommend.

Joel, you highlighted earlier the typical client is not a commercial enterprise for you, but retail agents and brokers. Maybe what's your go-to-market strategy at RPS?

Yes. So our -- when you look at RPS, our distribution is massive. So we trade with somewhere around 25,000 agents and brokers across the country. So really, our -- what people look for us is one of 2 things really, beyond relationship. It's about getting a problem solved for them because typically, they have an account that can't get it placed in their own market that they represent. So they're looking for us to place it because none of their markets will want that account. And so in the binding -- in our binding business, it's all about speed. It's all about we run, we get submissions in. We run it against a data set in analytics, and we can tell which accounts have the highest propensity to buy. So we work on those accounts first. Obviously, we can work on the rest of them later. Those are the accounts that get touched the fastest. And in binding, we do have the ability to quote, bind and issue the policy, collect a premium, do all the services of an actual insurance company without taking underwriting risk. On the brokerage side, it's really more about aligning our talent by line of business and by segment of that business with the retailers who need that expertise. They might need the placement capability or the ability to align a large tower of insurance to make sure that the coverages are all concurrent. And so we have specialists who can do very, very large complicated placements on behalf of a retail customer. So -- and then you get into the other spaces where they just need a particular expertise could be transportation. In trucking, we have a large business in our trucking space. And we have the ability to have market representation and underwriting authority beyond pretty much anybody in the space. So our go-to-market strategy is generally to be able to solve any customer's problem inside of RPS, whether that be binding, whether that be brokers, whether that be programs or it could be standard lines aggregation. Again be able -- as I look at it we talk about the personal lines space, be able to handle manufactured home and dimensions, everything in between. So it is really being able to solve retailer's promise.

Thanks, Joel. Scott, do you want to highlight how you approach the market from Gallagher Bassett's perspective?

Sure, right. What I mentioned previously is we think that the marketplace is having 4 segments for us. It's our traditional risk management client, large corporation, where they have a need for a third-party claims administrator to come in and design a program often quite customized to their specific need to reflect kind of how they want to manage their workforce when we're talking about workers' compensation. When we're more on our liability lines, it could be how we're going side by side with them to assist clients, customers of theirs who may have an issue within their business place. So that's a risk management client. Then we have -- we talked a lot about carriers. That's a whole different group of people that we have in terms of sales and client service capability when carriers outsourcing a portion of their claim operation to us. We're tightly integrated technology wise. In terms of kind of the day-to-day operation, we'll have large dedicated team and in a lot of cases, we're actually autonomous or were anonymous. We're not the face of that carrier. We're actually representing them as though were employees of their organization working with their independent insurers. You go to our group captive side another way in which we got a different approach to the market there. The needs of a large group captive is different. You've got smaller organizations that are using the captive. They require very much of a high touch when it comes to just working in conjunction with the organization, understanding they don't get many claims. So in a lot of cases, we're sitting there side-by-side with them explaining how this happened. What we could do to prevent it in the future. The cost can often be significant, so helping them think through how to manage the cost more intently. And then there's the public sector side. We do a lot of this in Australia. Another different approach to how we go to the market just because that buyer, that client of ours has different and specific needs that we will use to be able to address. But underpinning it all is the main approach to our market, which is we want to deliver a superior claim outcome. And whether that be for a risk management client and the specifics that we have to bring to bear there with a captive client with a public sector or a carrier we're thinking that is the overall value that we're delivering, but we do it a little bit differently depending upon which segment of the market we're addressing.

Thanks, Scott. One of the other things that we talk about quite a bit is our use of niches and specialization. I think that's very distinct and different how Gallagher is organized and situated. Tom, do you want to touch on our net strategies?

Sure. Thanks, Ray. We've organized our company globally around about 30 different practice groups. And those practice groups we know that if we bring in the best of our talent, we're going to write more new business and we're going to retain our business, and it actually shows up in our data all the time. Our practice groups are not something that we invented 5 years ago because of market conditions, our practice group are who we are as an organization. All the way back into the '60s when we began writing [indiscernible] accounts around the U.S. It has become one of the things that we've understood inside of our company about why specialization, why expertise is so important. As we've grown the organization and gone public, we're taking all the learnings where we've had all during these years, about how to take individual classes of business. It does not matter if its construction, if it's real estate, if it's heavy casualty, financial lines. We've got practice group leaders who day after day are living, breathing, eating and sleeping inside of those businesses. Once upon a time, I ran our construction practice and we had a statement, we're not in the insurance industry. When the construction industry, our entire job is to help you think more deeply about the risk management exposures that you have. And so as we continue to take our organization forward on a global basis, we use the culture that we have and the practice groups that we have to connect our company around the world and deliver outstanding results for our clients.

Bill, anything to add on niches and GBS?

Yes, sure. The vertical niches have been as widespread in GBS as much as GGB, primarily because the Blues plans will write every employer, the United Healthcare write every employer, Cigna, Aetna and so forth. So where we have seen some real good success when we can actually have good meaningful conversations about our knowledge of what our clients are doing. So we have about 10 verticals that are really doing quite well. And I like in this is going to sound like a weird analogy, but if you're going -- if you're out fishing and you're trolling a boat with a hook and a worm, you're not going to get that many fish. But if you focus on a certain type of fish and research, what tackle, what kind of bait you want to lure you want to go for it, you're going to catch a lot more. And so this is my discussion with our producers and our consultants, like knowing your prospect and your client business on the back of your hand helps you have a better, more meaningful business discussions. More and more our prospects are asking us how many clients like me do you have? And we do have that database, we can bring that information back to them. But it's more important when you're actually working with those clients on a regular basis because we really get questions like well, our labor is telling us this thing, but what are you seeing in my book of business, we're not seeing that. It's meaningful to be able to see that those kind of conversations. So yes, verticals for us is a big thing and up and coming.

Scott, any industry specialization or verticals you want to mention?

We actually have, interestingly, deep expertise in a lot of industries. When you think about just our makeup of our client base, I mean retail, hospitality, manufacturing, healthcare, construction, what's the one thing that's changed over the last year or so is we've never really gone to market that way. When we're talking with the client in any one of those industries, we're building a customized program. This is very specific to the uniqueness of their business. But more recently, we've actually started going to market within a couple of these verticals where we're actually thinking about how we get to the buyer in a different way. More specifically, construction is one of those. And we've started building an end-to-end solution, not just the claim handling piece, but the upfront safety, which is the kind of claim prevention activities that we're working on with our clients. And in very short order, we'll be doing the same thing within the healthcare space. So I think the difference for us, Ray, is I think we've always had the deep expertise. You have to be able to do that. You have to have that expertise to deliver a phenomenal outcome for our clients. But more recently, we've decided to approach the market with the industry as kind of the lead part of the conversation.

Great. One other important initiative that we've heard a couple of times mentioned already is Gallagher Drive. Patrick, do you want to touch on what that is?

Yes. I'm going to talk about 2 data analytics and digital experiences that we are working on day in, day out with all our customers. The first is drive now. Let me remind you, when I'm talking about data, I'm talking about that $100 billion of premium we touched the exposure basis and all the information that goes into that, some claims data and some outside third-party data that we all mix together to have great data. The digital experience is how we bring that to market, how the client or the producer consumes all that data. And so Gallagher Drive is really the way in which our customers consume the data that tells them customers like this are doing that. They're taking that limit. They're taking that. And I would ask you to remind yourself 90% of the time, we're competing against someone sizably smaller than us or that is acting as a pod within a large private equity business that hasn't changed much and hasn't accessed the greater data of the private equity. . So when you're sitting there and you're thinking about, okay, Gallagher Drive, the smaller brokers going out and talking to the customer and saying the account that I renewed last week got this type of rate exposure increase. It chose these limits. The account that I renewed last month and they're basically going off their broker brain power. Our team is out there with their iPads sitting down and saying, here's what customers look like in your segment, in your geography. This is the type of limits they're taking on their excess casualty, which is a tough line. These are the types of things people are doing on replacement costs in their property programs. These are the types of deductibles we're seeing for the claims that are corresponding to that. So that is a huge opportunity for us to compare ourselves to the people we compete with most of the time. We are literally saying clients like you are buying this. And that is a huge, huge benefit to our customers. You can go around and you can play with it online at our website and check out the cyber benchmarking as well as the umbrella benchmarking, which we released. We can do all types of special reports out of drive. We can set it up specifically for the client. The client can have access to it and play around with it. So it's a really unbelievable tool not only for the client but for the producers that are out selling it and competing every day against somebody who is just not equipped and doesn't have the data. I think the second one is if that's how we're doing data in digital for consumption for the clients and for the producers, we have another thing called Smart market, which is where we're using our data for our producers to better interact with our carriers. So if you think of it as the Uber of carrier placement, we're connecting carriers that see our data that are true partners. We've got probably 30 of them across the U.S. and Canada. They can see into our data, they look at accounts and they say, "I want to write that account. "Conversely, the smaller brokers going out there saying, my biggest relationship is with XYZ carrier, I've placed an account with them last week, I got a role with them. They don't have market insights into where the best place to put that account is. So not only do we use, the producers use it to understand where the appetite is and where the carriers are hot and what sort of feedback we've got on their last renewals but the carriers are actually tagging accounts that they want. Now that's a little different experience for client that I think I should send it to these 7 carriers, and I'll get you the best quote. It's -- you're with a good incumbent and there's 3 of our great carrier partners that have decided that this year, that account, if it comes to market is something they desperately want and we know that and we can benchmark it and then tie in the data. So SmartMarket continues to be sort of the second leg of the stool. You've got drive out in front with the customers. You got SmartMarket connecting the carriers. All our stakeholders are full of data-enriched information and we display to them in a very digitally enhanced, beautiful view, and it's really helping in the field.

Joel or Tom, any comments on SmartMarket in the use of sort of your core clients or customers?

We have our own version, which is, of course, our data again for carriers. Again, of course, we're most of our carriers are very specialized in the types of risks that they would like, but we give that same opportunity to some of our strategic partners to be able to look inside and identify accounts. It's just enormously efficient for them because they don't have to make phone calls. They don't have to make visits quite as much because they can identify the risk types that they would like to get a look at. So we have carriers, we have about 8 carriers that partner with us in that particular space in SmartMarket.

Mike likes to put it that inside of Gallagher, we don't have a great big marketing department. All of our producers are marketing their own accounts. And the reason we've always done it that way is because they can tell the story, they've got the connection with the client and they can do a better job of it. So we don't have 5 distribution centers. We've got 2,000 distribution centers in the U.S. but a great way for the insurance companies to be able to connect directly with our production force and identify what the opportunities are?

Right, so I think we're still running a little bit behind schedule. So we're going to skip over Gallagher, submit the advantage products, all these other great initiatives that we have and maybe open up for Q&A and see if anyone has any specific questions on what we're doing to drive organic, Greg?

Yes. It's Greg Peters, again. So one of the enigma for me sitting on the outside and for some of us is the economics behind some of these initiatives like SmartMarket and how you guys are getting paid and if you could give us I know you're not going to unlock everything for us, but give us some ideas of how that runs through your financials that would be helpful.

Yes. I mean SmartMarket is reserved for our top carrier partners. So it's I think we've capped it at 25% in the U.S., and we're growing it in Canada and other parts of the world. And yes, there's a subscription fee for the carriers to have access into our book of business and it's all very well laid out in our upfront commission schedule, our contingent and supplemental schedule and our fee-for-service schedule, which is where SmartMarket gets built.

And we repatriate that subscription feedback to the branches on a pro-rata basis because we want them reinvesting back in hiring producers, hiring people in the field to help support the business that they're bringing on. So it's short of the expense of running it. And the other part of it that's critical is that we are constantly reinventing it because it has to drive value for those customers being the insurance companies. So we measure the value to them. If we're growing faster with them, then they are growing with everyone else, then that is part of the value and we measure it. And if we're not, how do we fix it? Because maybe they're getting out of a business or maybe they're exiting a certain layer or a certain product line that might be the reason why their numbers are down with us, but how can we get to exceed where they're growing with everyone else that they trade with. And so we measure it and we are constantly looking for ways to reinvent it.

It sounds to me like this is margin accretive on a consolidated basis to what you're doing. So I'm trying to bridge the gap between that and the repatriation. Does repatriation mean reinvestment. Does that mean?

Just like our -- what I meant by that was just like our supplementals and contingents, we don't hold those at the corporate level. We push those back out to the individual P&L. So the branch P&Ls. We want them to work with their key trading partners. We want them incentivized to engage with those key trading partners to continue to grow. And so that's what I meant by repatriation.

Yes. The other thing I would mention, too, like the important thing to note, the actual revenues generated from SmartMarket, maybe not significant in the grand scheme of Gallagher overall. But I think the efficiency gains, the interaction to getting better outcomes for clients, that's the more important aspect for us.

Joe Christiana, Dowling & Partners. I was calling in on that $100 billion premium number that is touched by Gallagher, that's very impressive and was hoping you can help me reconcile that to about $9.5 billion of run rate brokerage revenues. I guess I would have thought that the yield on that $100 billion of premium would have been a little bit higher and I guess that also ties into a question of what has been the trend on commissions over the last several years, higher or lower static and how conversations with the carriers are going on that front?

First, I would say commissions are stack. There hasn't been a big increase, decrease in a number of years. So sometimes certain carriers talk about it's time to reduce their expense ratio and they want to start talking about it with certain brokers, they're certainly not talking about it with us. So it's been very static. As far as the $9.5 billion run rate on $100 billion, our job is to make sure that our customers don't bear the brunt of the 9% increase in any way that we can. So we're mitigating the losses. We're mitigating what the exposure to premium increases are going to be. So you're not going to see a true correlation.

Yes. I think that's a big number, of course, but it also goes across a lot of different things where we might be on a fee on a huge account. So it's really very difficult to correlate exactly a premium number to a revenue number to an organization like ours is so diversified.

I just want to understand the process for a carrier becoming approved to SmartMarket because I assume that you at least have the potential for everyone to join.

Well, when it started out, it was we were convincing the carriers that they needed to try this new tool and that it was going to be a great service for them. Now that we've proven it and we can show people that have been on the platform, have outsized growth with people that aren't on the platform, now everybody is clamoring for it. And then if you let too many carriers into it, it kind of waters it down for our key carrier partners. Now that being said, we do -- we've got the travelers on the Hartford's that will write a lot of our book and then there's a lot -- there's specialty markets that write other sides of the book. So it's not just the 25 biggest. It's the 25 that we kind of think fit our book the best and give us the biggest opportunity to have some carrier tag at least 80% of our book of business. And then we push and pull back on the 25, whether that's the right number or whether it should be 30. But now the question is from the carriers, can I get on it? Can I be part of the SmartMarket panel and that's a good position to be in as opposed to trying to sell it.

Yes. I think obviously, from a geographical point of view from them, every time they do a merger, there's that much more data that goes in the next year. So it's pretty cool stuff.

Just a question on just the productivity benefit from all of these. It sounds like you guys have been tracking that or at least Pat had mentioned that. You guys have stats on that. Is there a way to size the productivity enhancement that Gallagher Drive or CORE360 may have had on the brokerage force and how much more runway there is to improve productivity?

Yes. I think if you're talking about things like CORE360 drive and other client interfacing strategies, which is what we're predominantly talking about there. It's sort of a different conversation in terms of efficiency gains, right? Those are value adds that we bring as a part of either earning a new piece of business or retaining a piece of business. So the efficiencies associated with that really aren't there in the sense of maybe where you were going with that question. We look at our teams offshore in terms of how we can better leverage their use to become more efficient. We've got entire teams of people that look at that every day. As Pat mentioned, we have 10,000 of our colleagues that our India centers of excellence. Now where it's headed is that we believe that we can tap into many of the teams over there to help create a better, easier, faster environment for our producers to go to market utilizing things like Gallagher Drive. But that's a work in progress. We've got AI initiatives associated with that as well to help our -- when you think about SmartMarket, there is going to be an AI component to that, where we will be able to tell our carriers within seconds that they wrote something in California that they have an interest in New York and be able to push those opportunities to our carriers. So there is an evolution going on but I wouldn't categorize right now everything we were just talking about in terms of CORE360, in terms of drive as being an efficiency play. It's a new business development and retention play but there is incoming the ability for us to leverage our centers of excellence to enhance that experience.

And we're constantly trying to improve our process. So they are constantly efficiency plays that are being developed inside the company to take us forward. And we didn't touch on submit because we were speeding up but submit is a way for us to ingest the data from a customer in a much easier now digital format that I do think will have efficiencies over the future. It's tough to gauge it in the hard market because it's -- you're marketing so much of the accounts and renewing -- renewals are tough. But I do think that there's efficiency built into the digital and data analytics play.

Yanor Kinar with Jefferies. With regards to Gallagher Drive, can you talk about the take-up rate you're seeing there, maybe the type of customer that would use that to more?

Yes. Well, I'll tell you, it's -- as I said earlier, we play in the middle market, but we also play in the Risk Management segment. As you get into a risk management account that is very unique, their data become -- their data in and of itself becomes unique. So comparing it to a peer group, maybe not as helpful. So to accomplish -- what we wanted to accomplish utilizing drive, we pivoted to Gallagher Drive client, which is their unique portal capturing all of their data and be able to make a better decision. We have clients that have manufacturing facilities all across the globe. We can look within Gallagher Drive client and expose a plant that is underperforming compared to all the other locations. Now we can self-direct and guide that client to have better risk management strategies from a loss prevention and claims perspective at that unique location. So you tailor make it for, but I would say it serves from mid-market to the upper middle market extremely well because that's where they have a density of peer groups to be able to compare and contrast.

Mike, what do we charge for drive to our clients.

$0.

Nothing. So the take-up rate is anybody wants to use it. Okay. Thanks, everyone. I think we're going to take a 5-minute or so break and get back at 10:05, and we'll talk about the next fireside chat. So everyone on the line to hear some music for the next 8 or so minutes. [Break]

We're going to get started on the last fireside chat for this morning. Last discussion topic is going to be M&A. It's one of our key initiatives to drive shareholder value. Maybe, Mike, you used to lead the U.S. M&A efforts. Do you want to start and talk about our strategy in U.S. retail.

Sure. Yes. You all have heard me talk about our strategy here in the U.S. before, but just to reiterate, as you heard from Pat, the population is still rather significant here in the U.S. in terms of potential targets anywhere from a couple of million dollars in premium on up to a couple $10 million, $20 million, $30 million, even $100 million in revenue. But when you slice it down the middle, our usual target is somewhere between $5 million and $10 million of revenue. [Technical Difficulty] are the ones, as you talk about integration, we can get our arms around in a quick fashion, bring in the culture, bring in the resources, bring in the tools, but you also saw us successfully closed cadence and Eastern Bank, which were sizable acquisitions. And again, it takes a small army of people. A lot of these folks are embedded within the regions in which these agencies reside. And so they're all getting involved in terms of the integration. And so we do have a high degree of success with those folks. But if you look at the opportunities going into '24, I'd say they're on par with '23. You've heard me say before, we've got business development people in the field that all day, every day, that's what they're doing is creating connections and then bringing in our local leaders. Many of these relationships take 2, 3, 5 upwards of 10, 15 years to develop. But we're in the business of finding the right cultural fit first critical to our success in M&A. If we get that part right, the revenue, the earnings, everything else associated with that business will drive and if it has a geographic or a niche expertise, all the better. Many of our folks come in through acquisition and they bring an area of expertise, a new niche for us to capitalize on. So it ends up being a usual one plus one equals 3. If we get the culture part right. And like you heard from Pat, we typically do.

Patrick, any differences in some areas of the strategy or opportunity outside the U.S.?

No difference in strategy. I think you guys all know that the reason that we can do so many acquisitions throughout the year is that we have 40 to 50 people throughout the company that have the opportunity to move and bring in an M&A deal. We price it at the center. But outside of the U.S., in Canada, New Zealand and the U.K., Australia, it's the exact same model. We're looking for entrepreneurs that want to change to take advantage of the next level that they want to take their business to. And if we can get that right, where the people are interested in Drive, they're interested in SmartMarket, they want to change for the better. They're trying to strive to be a better organization that's not doing as much of the mundane accounting and HR and back-office work, and they just want to go out and sell, sell, sell. We're finding those in Canada throughout and throughout the U.K., Australia, New Zealand and same due diligence process. It's all about the culture.

And just it's great for the customer. Patrick shared with me this morning, he had dinner last night with really large customers, 7-figure customer across many divisions of our business and the CFO shared with him that when we were with the agency that you purchased, we felt like we had possibly outgrown them based on our size and our needs globally and then we heard that Gallagher had acquired them and our next concern was, "Oh, no, this is going to be corporate." There's going to be massive change. I'm going to suffer as the client as a result of it and you proved that totally wrong. What you gave to a local team or resources and tools that benefited me as the customer, and you gave exposure to international capabilities that allowed for me to continue to grow. And so that's the story you want to hear, right? That's what you want to hear from not only the merger partners, but probably equally as important as you want to hear it from the clients.

Maybe shifting outside of the major geographies. Tom, do you want to talk about our strategy there?

We're not interested in planning a bunch of flags around the world. But when you take a look at our business, we have people from all over the world trading with our business in London. And so if we find a really well-run business that we know we've got confidence in that we can grow with outside of our major geography, we'll consider making an acquisition and we've done so.

What about RPS? .

Yes. So we're a very good acquirer as well. We've done about 40 deals in the last 10 years. We'll continue to stay on that pace of doing deals. We're most interested in firms that fit into our delegated authority or program space. We're very interested in looking to have more firms to be able to continue to significantly grow that particular business. The wholesale overrode side, if there was a right opportunity, we would certainly throw our hat in the ring of trying to do that. Our focus on open brokerage typically is just keep hiring more really talented producers. That's really been the gain there because we're already geographically spread completely across the United States in that space. So we'll look at MGA binding organizations that have particular specialty or expertise or bring certain things to us, and people are very attractive to us because people in those spaces typically look how to enhance their distribution as larger retailers have reduce the number of intermediaries or wholesalers that they trade with. We're a great solution when I told you earlier that we're trading with 25,000 retailers broadly across the United States. So we look for that. They look for our ability to help them invest in their business, participate in the internship program, which has been an absolute home run for all of us across -- broadly across the organization and to be able to have, obviously, market relationships that they can get on their own. So we're a great place for people to merge with.

Bill, do you want to hit the benefits side?

Yes. Similar to P&C for the reasons people join us. We've done almost 200 mergers since 2010. So we're obviously very acquisitive as well. We're always looking for good merger partners with right culture, right fit, emerging for the right reasons in each of our 3 business lines, which I mentioned one over before, that's part of Gallagher Better Works. There have been a couple of new extensions recently that value proposition what the clients or employers are looking for. Two recent that we did, LIG, Lighthouse Insurance Group helped us get into alternative solutions like [indiscernible] individual health, getting into Medicare supplement plans as folks become eligible for Medicare. That's reap some benefits already. We were able to actually refer a large segment of population of a Buck client over there. And it's that kind of -- having that kind of solution is doing quite well for us and will continue to be successful for us in the future. So that's an area that's nascent for us, but it's really been a success. Another is a move we did recently as well about a year ago, F3, its ability to bring financial planners to the middle-market employees. Some of they don't have access to the big banking firms out there in the world. We're not going after the high net worth. We're going after folks that have a chunk of money not sure what to do with it and through the employer relationship, we're able to help those folks invest and save for their retirement as well. And that one is going to also be available for us. A lot of little things. A lot of these pension plans, they want to be -- want to derisk and so we help get the client get that done. Now the employer -- employee gets the lump of money. What do I do with it? So we're talking to our clients when we do this. You want to have the financial planning team to be a part of it to help your employees invest wisely with that money as well. So the value proposition continues to get stronger as we go out there and we're always looking for merger partners that help us take care of our clients and their employees.

Maybe do you want to touch on Buck 2 while you're in M&A?

I mentioned one of the success stories since they merged, it's going really quite well. The hearts and minds of the team are really on side of Gallagher. They're still happy to be here. We're collaborating pretty consistently in all locations. We've made some organizational changes. We're taking some of the top Buck folks and putting them in leadership roles here at GBS. And that's been a really a big hit for those folks as well. So we're just getting started on a lot of things. We see lot of good things in the future. We've only been doing this for 9 months. If you like to keep things in perspective. And already, people are on board and working. Now we're getting into making sure we don't need to have 2 different types of time and billing systems, how do we synergize those. And we're also getting people in the same offices, saving on real estate. There's been no issues whatsoever that even worth mentioning other than positive, very positive energy from the merger over.

Great. Scott, do you want to hit on the Gallagher Bassett's merger strategy.

So I mean our strategy, you've heard it over the years, has stayed pretty consistent. It's less about adding volume. It's about adding when the opportunity arises, specific product expertise maybe getting into a different geography if the opportunity would arise. We don't do many. But actually, we announced one here within the last week or so down in Australia where we did an acquisition of a company by the name of MyPlan Manager. It gives us into a different offering. There's the Australian National Disability Scheme, which this particular company is a leading provider into that insurance operation. And we're quite excited about the potential of it. It's a growing segment of the Australian marketplace. And if you look at potential synergies between what that organization does and what we do in our core work comp business in Australia, I think the future is actually quite bright. More -- a little bit further back in the last couple of years, we also mentioned the construction vertical where we're getting into the environmental health and safety space once again, an example of where we are extending ourselves into new product offerings. That was done primarily through acquisition as well. But just as a reminder, it's something that we see as being able to kind of enhance the products that we offer to our clients or get us into a new area of the market that we haven't been full, we will do it. It's just not that often.

I know we started touching on it a little bit, but maybe from a seller perspective to Gallagher, what excites them about joining Gallagher franchise? I mean, Patrick or Mike, any comments?

I mean you are right. I think you'd say, number one, they want our niches. So they might have a niche. They might have a specialty. They might be very good at something, but they can't say we can write any account of any complexity anywhere in the world. And they've got 10 accounts where they're very close with buyers and CFOs and CEOs that they've just never taken a swing yet because they don't have the expertise, and they're not going to put themselves out there. They want the niches first and foremost, to write more business. Secondly, we've got a solution for most of the mundane. So when you think about our service centers of excellence and think about all the work that they do behind the scenes that allows the people in the desks at Gallagher to just sell more insurance. That's from billing to set issuance to policy checking, we've got a solution for that. Then it's the tools. So it's the tools to sell the data, the analytics, our CRM system, everything that you need to put in front of a customer. We think we've thought about it. We think we've invested in it, and we're giving you data real time with a digital experience and an unbelievable sort of group of skill sets and market leverage with our carriers. I think that's important. The carrier partnership I think Doug was having lunch with somebody the other day. It was a reach on an acquisition. They were saying we really having a problem with this carrier, we can solve that. Well, we've got a problem with this carrier, we can solve that. So it's carrier relationships as well. I think it's our reputation as a good buyer. There's not that many people that can go out there and say they have done the quantity of deals that we've done and done them successfully. So they know we have a proven track record. And then the final one, I think, for us is broker run by brokers. We know their business. We're not people that are born to what they do day in and day out. We were all brokers ourselves and we want to help them grow their business by understanding what they do. You combine all that sort of stuff with the ability for them to adapt and change and want to take it to the next level. We're the best buyer on the street.

Anything to add, Mike?

I would just add that when we talk to merger partners, sometimes the idea in the back of their mind is, I'm going to join this firm and all the market share is going to be gone. What are my producers going to do? Who are they going to call on because Gallagher is big, and Pat talked about $7 trillion of global premium. The best we can calculate here in the U.S. is that we have about 4% to 5% overall market share. It varies by some geographies, some up, some down. But you think about that statistic, they join us, everything Patrick just shared with you in terms of tools, resources, efficiencies and yet there's still 95% more market share out there to go get, and we don't have any geographic rules or regulations of producers in New York City, and they have an opportunity in Los Angeles, go get it, team up with our team there. If you need to tap into the niche expertise, whatever you need to help close that deal. So the opportunity is seemingly endless for those folks, even though we are large, we still only maintain about 4% to 5% market share.

Joel, anything to add on the wholesale side?

I think people tend to migrate to us whatever it is the culture. A lot of it is, they know -- we live in an industry that's so much smaller than, of course, the retail side. People know everybody, they talk to each other, they find out how the merger went. Did they execute on what they said that they were going to do, keep their promises. Those are all important things in our industry because the industry is kind of -- it's not small, but everybody knows each other pretty well. And they've all had friends who've merged with us or someone else. They want to know what that experience is and our experience and our reputation is so, so good, culturally, operationally and financially. So those are all positive things that people want. And of course, in today's marketplace, and I'm sure Mike and the others up here have experienced. A lot of deals are brokered. A lot of deals have representation. We have a very low execution where we considered to be a low execution risk. People know that we don't have to go out and borrow necessarily borrow money. And we typically close the deals that we intend on closing. And so the execution risk for a seller is very low when you talk about any of the Gallagher divisions. I participated, heard your presentation recently. And I've kind of noticing on the side, it wasn't just a wholesaler. And after Mike and Patrick and Tom got finished, I was kind of looking interesting thing because there are so many advantages to join in this organization. And I kind of look at today almost all fear in their eyes because they don't have all the tools, offerings, things that this organization can potentially bring to a firm. And almost -- they always looked at it like they were scared to that. Oh, my God, I'm so far behind. And it's just really -- from my end, it's a [indiscernible].

Bill, anything to add from a seller's point of view to join...

Similar concepts, the idea that they can actually bring in more solutions to their clients, whether it's retirement plans or property casualty focusing on benefits for a second here, the complexity in terms of handling an account really gets intense and not linearly, but geometrically, as you go from a small community rated to a large jumbo self-funded plan. And a lot of our merger partners are really well known in the community and they have relationships with a larger employer, but the merger partner knows and the relationship knows. He or she doesn't have the capability. By joining Gallagher, he will then not only get an army of compliance resources, but also the financial and actuarial consultants that help them on the data. We are doing something similar in terms of launching our version of Drive in terms to be able to take the data and the claims from our prospects and do a diagnostic on what they should be doing to try to save money. One of the questions earlier about premium fatigue. You have labor and wage and salary inflation and now it comes -- here comes the medical rising again. There's a lot of push on us to help them save money. So we've had some really good success with our pilot of our drive this year. Our close rate went above 50% on those that we got decisions on. And we're feeling really good about this as we expand further into the middle market going into '24. So those capabilities and the opportunities to do more cross-selling and solutions for their clients is why they join Gallagher.

Great. One question I've been getting quite frequently over the past few weeks is bank-related M&A. I'm just curious, Mike, do you have any thoughts about that trend per se, of what's going on at Gallagher? Is it a trend? .

Well, maybe we may have that reputation. We've been very fortunate with M&T and with Cadence and Eastern. But let me be clear, these were very well-run business, many of whom in the example of Cadence, we knew Markham and the rest of the leadership team for many, many years. And so it was -- we knew going in it was a good cultural fit and a good strategic fit. When you talk about Eastern and what we have here in the Northeast, particularly in New England, it complemented our business there extremely well, which was predominantly Life Science and D&O with more diversified books of business in the Eastern acquisition. And Cadence was the same way in the Mid-South. And so they were very strategic. They were relationships that we had for a long, long time. They happen to be owned by banks. And that was really, for us, we went about the process no differently than we went about every other process. The side benefit, quite frankly, was that many of those businesses, in fact, all of those businesses were really run well from a compliance perspective, having been owned by a bank we're walking into a situation where we were concerned about the integrity of the numbers or the business in general. It was very well run. The challenge that they had, I think, as part of a bank is that the bank wasn't, as Patrick said, run by brokers. So investing and reinvesting in some of the things we've been talking about this morning really wasn't occurring. And so it was just a perfect opportunity that we saw both geographically and strategically. And we'll always consider any deal, whether it's owned by a bank or not, but we've got to get that culture piece right and the strategic piece, right, and then we'll pursue it.

Bill, anything to add on the benefit side. You got some business from some of the banks, right?

Yes, we'll run. We're really excited about the ones that we've mentioned so far so good on the performance, too. So we're excited.

Tom, what about outside the U.S.? Anything to consider related to banks or?

No, we really don't have any outside the U.S. at this time, but we've got very close relationships with banks in the U.K. They don't own brokerages, we got close relationships with them, and we put units on them to actually work on Affinity and small business and SME so that we work together. It's actually teams of people have generated over $30 million of revenue for us.

Okay. And maybe we'll open up for Q&A on M&A-related topics. Maybe 5 minutes, and then we're going to move on to speaker.

Ryan Tunis, Autonomous. I guess on the U.S. side, if I'm remembering correctly, maybe like 5 or 6 years ago, there were maybe some metropolitan regional holes you guys had, like I remembered maybe it might have been New England or Minneapolis or something like that. Is that still the case today that there are priority areas that you just haven't really filled out yet?

Yes. I mean if you look at a map of all of our offices, there are definitely certain geographies that we'd like to be in or bigger in, and you referenced a few, but again, it gets down to finding the right partner. And we're not going to do a deal just to be present in a geography because we don't have any market share in that particular area if it's the wrong fit. So you got to get that fit right and that takes time. And again, it's not a situation where we have to be in a hurry to do any deal. It's about building that report and that relationship with those firms over a period of time. So when they are ready for that generational shift and they don't have some money internally to perpetuate that business, too, that we've built that relationship and they understand our company so that it is the right fit for them. So yes, there's definitely a few, if you look at a map of the U.S. But again, we don't have any geographies that we don't play in because we don't have any restrictions on our producers. So relationships of our producers could be in any city, no matter what pursuing an account that they have a relationship with a CFO or a CEO. So we have representation just not having maybe a physical office, and we'll wait for the right time.

Got it. And then yes, it was interesting, you mentioned the compliance department, the banks, so you could trust the numbers, which kind of made me wonder like how audited are these when you're buying a $10 billion company, like how trustworthy are they are the financials? And what are some of the type sort of subjective judgments that you guys have to be able to make on your own around that?

Yes. I mean, look, we take that very seriously. So whether it's a $5 million, a $2 million or a $10 million business as part of our team, part of Doug's team our financial group that goes in and does the due diligence to verify and validate everything if they are represented by a consulting firm, certainly, that helps in terms of getting the numbers in order to better understand the history and then where the business is going. But we feel very confident and comfortable in the teams that we have that go out and do our due diligence to validate. Just in these particular cases, they were bigger. So it also gives us a bit more confidence that the compliance and the integrity of the numbers was there. But short of that, if they -- even if it wasn't owned by a bank, we would have done the same type of due diligence to validate and verify.

The folks on our financial due diligence or former auditors, public accounting. They know what they're doing. They take and tie numbers out.

And then technology, when your bank owned, the technology was at least up to snuff. Technology is a big part of DD on a standard $10 million.

Very quick question, and I think it's for Mike. My impression is that most of the larger brokers have been underweight vanilla personal lines. And I'm wondering whether with technology that represents an area of interest going forward.

Let me try to paraphrase. So you're asking that personal lines be an important part of our forward looking as we do more of these acquisitions is that where you were headed with that?

Essentially, right. It doesn't make sense. Do the economics now work to build a big independent personal lines broker.

Independent personal lines broker. Yes. I would say that we're going to -- most of the deals we look at are in the commercial space, predominantly, looking at a personal lines-only brokerage firm. Recent history has not been something that we've considered. But certainly, if it's extremely well run, we looked at a fairly soluble, we didn't ultimately close it. Somebody else did, but it was a very significant private client only opportunity, but we have a few others right now that are exclusively in the personal lines, more specifically in the private client space. And we've done a few of those. We did the Denver agency, as you might recall, in Denver, Colorado. We did Lloyd Bedford in Cox, which is up here in the Northeast that exclusively does private client and personal lines. So we believe in that space, but finding the right target is critical.

Brian Meredith, UBS. Just curious on the brokers you're buying from the banks, how much of that business you find is potentially tied to some of the lending that the bank does just tied into the overall situation and how challenging is it some time to keep some of it because of that.

What we've seen is I think that was the dream that a lot of the banks had early on was that there'd be this chemistry and that there would be a lot of referrals in cross-selling. In reality, a lot of that never happened. Now there is some revenue that is attached specifically to the bank. And so we want to make sure that we retain that. So when we're having conversations with the banks, so it might be their professional liability might be their D&O, it might be other things that they could be the property for that bank that their owned agency was handling for them, and we want to make sure we retain that. And so we work that through when we're going through due diligence and having those conversations with the bank. But the third-party business really never took off in the sense of those owned brokers by banks having this chemistry that they, I think, dreamed of when they started buying independent agents.

One more question. Yes, this a little bit unrelated. Canada, you talked about opportunities in Canada. Canada is an interesting area that because some of the largest insurance companies out there are probably some of the active acquirers or brokers. Just curious, how do you view them as a competitor in the M&A kind of marketplace? And how does it affect your relationship as a broker with those insurance companies given that they're effectively acquiring distribution up there?

Remember, our big foray into Canada was a purchase from an insurance company from RSA. So they had built a broker, and we bought it, and we're very happy to have it. So sometimes, they get it right. It certainly has not stopped hub, which has grew up as a Canadian business. It certainly has not stopped us as we've done acquisitions. This is the third element of competition. And we don't mind competition. I mean, they do value the premium a little bit more than we would value the business. So is it pushing multiples a little higher than we like. So might we sit on the sidelines for a couple of deals. I mean there's -- there's a new one started up by economical that really does believe that it's called Definity. It's got a play. And they believe that they're going to be able to move some of the GWP from the broker into economical that they might have a better sort of price objective for that deal. So we're not going to stretch our legs too far, but we do think that there's a lot of those brokers out that don't -- they want to be part of a broker run by brokers, not a broker run by carriers, and we haven't seen too much success over the course of the last 25 years of carriers doing really well in brokerage.

Maybe time for one last question.

Any potential you would look at one of the big private equity players, something that's really of size. Is that something you'd be interested in at all terms, obviously influence that, but would you take I won't say risk but a bigger bite of the apple.

Mark, I think it depends upon the individual private equity firm. There's nothing that would preclude us from not doing it, but the fit would have to be right, the culture would have to be right and the price would have to be right.

Would -- are there cultures out there that would be suitable? I mean as you look to of course, I don't know if the names.

Yes. Of course there are.

The pricing right now, Mark put us down. That's what Tom said. Well, I think the other intangible there is we have to look at those businesses and decide whether or not the people that sold them we may have competed to potentially buy sold to them for a specific reason, which was the sales pitch was, we're going to let you do what you want to do, just send us a check every month. I'm being general. But by and large, that's what they did. And we suffered by that, right? By comparison, at times like that, where we didn't win a deal that we may have wanted because we will change quite a few things. We think we've got a good model. We think that they benefit from that model. But we do evaluate that intangible because certainly don't want someone who thought they were selling to something and now they're part of something else that they didn't want from the beginning. And so we have to really weigh to Tom's point, the cultural impact on that because we don't want breakage. We want to bring these teams in and help them grow even faster. So it's got to be the right complement of all of those things.

Well, thanks, guys. I really appreciate the discussion. And we're going to move on to the next speaker. It's going to be Doug Howell, CFO. He's going to give a wrap up of sort of the comments you heard give a little bit of flavor of margins in organic for fourth quarter and full year 2024 by some of the CFO commentary.

I'm going to speak fast. So Pat has to come back quickly. Thanks, everybody, for coming today. I've got some notes here, and then we'll open it up for Q&A and maybe I'll put on a difference mic at that time. But it's great to be back here. If you think about it a year ago, we were right here. Actually, Pat had COVID a year ago, right. They both role last time doing his piece, so it's great to have him lead us off. And I went back and kind of looked at my notes from what we talked about a year ago. And as we sat here and we looked at 23' again, a full year ago, we thought that the brokerage segment could deliver between 7% to 9% organic growth. We thought we'd have about 50 basis points of margin expansion. If we hit 6% or more, and the risk management side, that's on the brokerage side and the risk management segment, we thought we'd be in the high single-digit range for organic and that margins for the Risk Management segment would be around 19%. Well, if we have a good December and we close out strong, we're going to do better than that. As Pat said, kind of at the beginning, we see the brokerage segment posting this in full year '23 in that 8.5% to 9% range. It's a little bit better in the top of the range and maybe getting adjusted margin expansion of 80 to 90 basis points before the rolling impact of bucks, so we'll overperform on that. Risk management is having a terrific year. Maybe they're going to be bringing somewhere around 15% organic growth and they're going to have margins above 19.5%. And again, that's if December closes out. And the other asterisks on this is we've had a terrific acquisition here. We talked about the 3 bank acquisitions that we've done. We've also had terrific opportunity in the tuck-ins, too. We are seeing opportunities to win against the PE firms more and more. So I think our story is resonating. I think that the banks are exiting the PE firms are kind of pausing in many cases. So this year, we could end up with purchasing nearly $900 million worth of revenue, and that kind of sets us up for about $500 million of that revenue will roll in, in '24. So that would be a terrific, terrific '23 if we can post those and sets us up really nicely for '24. Just drilling down a little further on the quarter, fourth quarter. You heard Mike and Patrick talk have upbeat comments related to the global P&C retail market. They highlighted a lot of exciting growth initiatives that I think is a little bit like a flywheel. We're just getting better and better at those all the time. So we had some very favorable commentary in the near term regarding the E&S market and the wholesaling business for us. At RPS, if you look at the total -- in total, the renewal premium increases, Mike hit on this again, but I want to reiterate, between retail, wholesale they're tracking very similar here in the fourth quarter to what we saw in the first 3 quarters, call it, around 9% premium increases. So that's not much changed than what we've been talking about. So I think the market is pretty good for us. We're not really seeing -- Pat hit on this a little bit. We're not seeing signs of an economic slowdown in our numbers are overnight, so we look at renewals, cancellations, audits, endorsements. They're running at positive levels still. And so that's good. We're not seeing any economic slowdown there. And then Tom also talked a little bit about our reinsurance and London specialty brokerage business is performing very well, and we're coming up on the 1/1 renewals for reinsurance. So I think we're in a really good position on that. And then Bill had some nice things to say about what he's seeing in the health and welfare and consulting businesses. So as you digest all that, we're not seeing any meaningful change in the market overall. No change than what we've been talking about the previous 7 times we've talked to you this year. So, so far, I think the fourth quarter is stacking up to be similar to previous quarters on the underlying conditions. Now I do want to highlight 3 things that we've been talking about that's going to cause a difficult compare in the fourth quarter. I've talked about it for a full year, recall we had an accounting 606 adjustment last year that won't repeat this year. So that puts about 1 point of headwind against our organic here in the fourth quarter. We have been talking about the lumpy nature of our large life cases. So that will show its head again. Last year, we had about $10 million of revenue in fourth quarter related to those, if my numbers are close on that. I think some of that will get pushed into 2024 here in the fourth quarter. We are seeing elevated loss ratios that was notable this morning, I looked at the [indiscernible] Best put out that the industry suffered $36 billion of underwriting loss in the first 9 months of 2023 so far. They just put it out this morning, and that's up $7 billion in losses over last year same 9 months. So the carriers are solving, that will have a little impact on our contingent commissions here in the fourth quarter as we tied up that estimate. And the only other business that I can see, I think I see bottoming in D&O. I see a bottoming in cyber. The one little industry, we have a significant practice in the entertainment business and the impact of the writers and actors strike is having a little bit of an impact on our entertainment business, call it a few million bucks. We're talking on a quarter that's going to be over pushing $2 billion in revenue. I'm talking about just some nuances. But that's hopefully, we'll see that come back in the first half of next year. So we've been underlying running around 9%, but the headline numbers are going to be have a difficult comparison. So call it, 7% to 7.5% here in the fourth quarter. Now interestingly, I went back and I looked at, if we post that, we'll get that 8.5% or 9% for the year. But we look back last year, we posted 9.6% in the first quarter, 10.8% in the second quarter, 7.8% in the third and 11% percent in the fourth. This year, we're like 9.1%, 9.7%, 9.3%, and we'll probably have that 7% to 7.5% in the fourth quarter. So very consistent to what we've been doing over the last couple of years. So I would say no new news in there and that story that we've been talking about. When I look at -- pardon me here the Risk Management segment, looking to be around 13% for the quarter, and we think that margins are going to be nicely over 19% here in the quarter. And looking ahead to '24, like Pat said, and we've been talking before we see the Risk Management segment in that 9% to 11% range for next year as we start to lap some of the larger new business wins for the Risk Management segment. When it comes to margins, fourth line, right in line, fourth quarter right in line with what we were telling you at the end of October. We see adjusted EBITDAC margins up 40 to 50 basis points in the brokerage segment and much FX impact. So it's pretty easy for you to calculate this quarter. And if we deliver on that, '23 would show 30 to 40 basis points of margin expansion is the headline. But if you back out the rolling impact of Buck, would be expanding margins 80 to 90 basis points. So think about that if we post 8.5% to 9% for the full year, we're going to impose nearly a full point of margin expansion in that range. So that would be a terrific year. As for '24, I still think there's margin expansion opportunities above 4% organic growth and maybe about 50 basis points of margin expansion if we post 7% next year, something like that. One other asterisk on that be a little careful in your first quarter model. We still have the roll-in impact of Buck that will impact first quarter margins. I'll update this in January for you again, but we think that as Buck rolls and then after April 1, it will be in our numbers, so the year-over-year comparison will be pretty easy. So risk management, I think they're going to be above 19.5% for the quarter and margins next year for risk management, I would say, would be around 20%. So no new news there, but just reaffirming what we've talked about. If you go to the CFO commentary document, just the typical modeling helpers that are on Page 3 of that. You'll see FX has bounced around a little bit, so we've updated our guidance on that. You'll see that we always put in what we think the recurring cost will be of the accretion on the earn-out payable. One thing as a heads up, we are now going to -- by the time we get done with the quarter, by the time we talk to you again in January, we should have a really good insight to what we think our earn out payable will be on the Willis Re acquisition. If you recall, the way it's triggered is once your '24 revenues, if it hits certain targets, then there'll be an earn-out payable in '25 related to the '24 performance. Well, with that business so heavily skewed to January 1, I think we'll have a pretty good estimate on that. So we may end up taking up to $300 million earn-out increase related to Willis Re in the fourth quarter. Remember, we adjust that out, so it won't have any impact on our adjusted results, but oddly enough in an acquisition, you remember the accounting, if it performs well, then you have to take an expense charge. So that will come through and we'll adjust all that out, but just a heads up that we could be taking as much as a $300 million provision for that, which is a good thing, but that won't get paid out until $25 million. So it's noncash in '24. But it's a really nice affirmation that the reinsurance business is performing very well. That would be great. Also on Page 4. We've updated our fourth quarter and full year '23 corporate segment guidance. Not a lot to note there. There's a little FX changes that flows through there. And then what we also did is we also provided you the first time the annual amounts or first look at '24 corporate segment expenses. So you'll see that the only real news in there is pretty consistent year-over-year on a full year basis. This interest expense because as we borrow more, our interest expense goes up. So take a look at that as you model it. I don't have quarterly spreads yet because I have to look at some of the tax items on a quarterly basis, but I hope to update that in January. But for purposes of doing your early look at '24, just divide the annual amount by 4 and you'll get pretty close to each quarter's spread for the year. I'll update that again in January for that. One other thing when you get to Page 5, when we talk about the clean energy results, you'll see in there the only real change in that is the fact that you'll notice that our credit balance is actually growing compared to what we showed you in October. The reason why is we filed our October tax returns, we changed the method of tax accounting that allows us to restore about $200 million worth of our tax credits that we can use in the future. So you'll see that number change. So it's going to be a number of pushing $900 million worth of available tax credits, which is terrific because that's just future cash flow. Remember, that doesn't come through our P&L anymore. That comes through the cash flow statement. So we'll have about $900 million of tax credits that can help us fund future acquisitions. Again, no income statement impact, but you'll notice that change. We updated the role of revenues and look at the -- we added a footnote of regarding Gallagher Bassett, they closed an acquisition that Scott mentioned. So not -- the table is brokerage segment only then read down at the bottom, there's a paragraph in there on what we think the rollover impact of the acquisition that we just announced last week for that. So that will be that. So when I look at cash, M&A, capital management, right now, we've got about $500 million of cash on hand. We do have some M&A tuck-ins that will close between now and the end of the year. And as I look at '24, our early estimate is we've got about $3.5 billion of M&A capacity in '24 using free cash flow and using incremental debt, obviously, issuing that debt at a very safe investment-grade rating. So a good war chest for us to continue acquisitions next year. So those are my comments. I think an as-expected quarter that we've been telegraphing for quite some time with you, we're set up very well for '24. I think we'll close out a terrific year in '23. Again, going back one year ago, we're going to overperform on everything that we thought we would do. last year at this time. So I feel pretty darn confident that we're going to have a terrific '24. So that's what we have for now. I'm sure there'll be questions, but I think that's it.

First one, a quick one. For the Willis Re earnout, what was the original pick that you put up for the earnout payable when you did the deal?

I think we put up about half. It's a $750 million earn-out payable, some of that accretes up and some of it is just change in estimates. So we'll put up the other half probably here at the end of the quarter.

And then I guess just on the M&A since the group margins have gotten so much better over these last, I don't know, 10 years or whatever, like why is it not getting more difficult for M&A to be margin accretive?

Well, I think there's a lot of guys out there that are not running as efficiently as we are. So as we buy it, the M&A Buck is the one that's notable, but I don't know if I'm getting that feedback here on this, I'll come over here. I just think that most of these brokers are running kind of around 30 points of margin, and we're just a little better. So I would say that it's almost a push on what we're expecting other than from the Buck roll-in. Yes. So we're operating better, but we're not synergizing out a ton of expenses of those -- they don't have that much in back office expenses that we consolidate about. So when we do tuck-in acquisitions, remember, our story is they can't make money for their own family. They won't make money for us. So why buy them. So they're margin, solid organizations. And it's -- it's a push of 10 basis points, one way or another, but it really doesn't impact it too much other than Buck, for instance, as that rolls in because that runs margins in the low 20s.

Sorry. And then just one more. I mean Pat was talking about the certs and stuff like that earlier. Just out of curiosity, like as a percentage of revenues, like what are the frictional costs of a broker for things like E&O insurance or I don't know, settlements like -- just like things like that?

Okay. A lot of -- first of all, our E&O as a percentage of revenue was down dramatically because of our standardization and quality control, that we do in India. I think that, when I got to Gallagher 20 years ago, we were booking somewhere around 2.5% to 3% of revenues as E&O. It's de minimis now, to be honest. The premiums on that I don't know, we might spend $25 million a year, for our premiums. So on a $10 billion company, it's not a big number. The more impactful is the thing -- we really didn't -- intentionally didn't talk a lot in this meeting about operational excellence and everything. I'm telling you. The efforts that we started 20 years ago to standardize, centralize and reform, how we conduct business into a standard way will pay massive dividends with AI. I can tell you that right now, we can run AI on a standard set of information. Theoretically can run it on nonstandard information, but we know you get much better output when we have hundreds of projects that are using robotics. We're using AI. We're using just other technologies to provide a better service to our folks. So the efforts that we put in, in the past, that's why we're spending $300 million a year on investments to make our business better. If you think about how much we're spending, and that's one of the great levers. I'm not worried about a recession. I'm not worried about a dramatic downturn in rates. I think the future is pretty bright on those fronts. But we have a lever that we can pull pretty quickly on how much investment. And we're making substantial investments to win at the point of sale, over and over and over and not lose our customers on a daily basis. So maybe we'll put on for the March meeting and talk a little bit more about operational improvement. But all the things that we're doing, they're not free, but it puts us light years ahead, in my opinion, in the competition.

[indiscernible] margin improvement.

Yes. Yes, we're up, I don't know, 600 basis points in 4 years, in margins, 500-some basis points. It's a pretty -- when the pandemic hit, it hit at the perfect time for us to leverage all the investments that we had been making and the team really got after it. I got to give these guys credit that are running these businesses. That day hits they're right there on the field with those hands in the huddle, saying, "Yes, let's go after all these things that we've had on the drawing board, and they delivered so.

Doug, so just go back to the '24 outlook commentary. I think you said 7% organic? I know there's a range...

7% to 9% organic is what we aim.

And then 50 basis points of margin expansion, can we go to the 7% organic? I know this has come out before in other sessions, but sort of unpack how much is rate, how much is exposure, with new customers? And how much is new business or -- I know you can't give specifics, but how are you feeling about each of those buckets inside organic?

Well, I know we have provided the team as front-end guidance on that based on our look. We said, assume 1/3 from rate, 1/3 from exposure unit, 1/3 from net new business over loss business. So that's -- as they did their budget and plan, we're not quite done with that yet. We wrapped that up usually in the first week of January. But that's -- I'm not getting a lot of pushback from the field that those are pretty good assumptions.

Okay. And then I can't help myself because of your comments around AI. And some of your peers have announced restructuring charges again. And -- is there -- as you think about the opportunities in -- with artificial intelligence and technology? Is there something in the works, where you could see Gallagher do Gallagher 2.0 version and roll out a restructuring plan? Or is it just the continuous improvement, is just going to be to regenerative improvement?

I don't think so, Greg. I think it's just -- I mean we're looking at 1,000 Fintech companies all -- it's embedded in our cost structure. It just is there -- maybe I should bear that out a little bit more for you by January or March to talk to you about it. But we're talking about $20 million, $30 million, $40 million of type of IT investments into this space, next year. Which just kind of goes into our operating expense and get spread around. So these aren't huge numbers that would -- I would say, would be indicative of restructuring charge. I think the restructure charges, to be honest, is to standardize their business first and then deploy the technology in. But I don't know you followed them more than I do. So we've already made that investment in so many of our businesses to standardize, centralize and conduct business in a singular fashion. That will pay huge dividends in AI to repeat myself.

Okay. And then the final question is just close rates on M&A. Has there been any change as we get to the year-end '23 versus where you were at the beginning of the year because you always -- you're always out there telling us about this huge pipeline of signed term sheets out there. Give us a sense of how that's...

The guys probably have a better feel, but I believe we're winning more than we were before. I think that the -- I think there's been a lot of headlines from some PE firms that are saying that their debt loads they're going to hit a wall when it comes to the debt. They're having to do expense structure. Some of them are announcing no bonuses or no raises. I think that if sellers read that just like we do, and they say, "Why do I want to do that? You get to come home and stay home, at Gallagher. You know who your leaders are going to be. You know who -- what our direction is. We talk about where we're going all the time, and we talk about how we expect you to behave inside of the organization, too. They see that. It's changing all around them, when the competition is PE, the banks aren't buying right now. So I don't see pension plans really buying much. So I think the story -- actually, I got to tell you, I was in Brooklyn yesterday, and I had lunch with a nice agency that we bought, call it $1 million or $2 million of revenue. The brothers were there, the third generation of running it, terrific guys. And for them, it's so apparent. You get all this one day after you sign. You don't have to invest in it. You don't have to work on it. You don't have to develop your own tomorrow, you get drive. It may not be on your data, but what difference does it make? You're talking about all of our data immediately can put that laptop in front of a prospect and say, you get more from Gallagher, get this, this, this, they have relationships with carriers. We help them with that. So the story of what you get from Gallagher is so compelling anymore. I don't know why anybody would want to sell to that -- said I think that maybe they're a little bipolar. They don't want to change, then why sell the point. So cash, I guess, right? I'm really excited about our M&A story. And yesterday, it was really fun to have lunch with them.

Liz Barney. I think in [indiscernible] if you could talk more about just the broader things you're doing around productivity and whatnot in March, I think that would be beneficial to long-term shareholders because I think something that we think about is, at some point, we probably won't be in a hard market. It's not probably not in 2024, but in 2025, 2026. And, just trying to think through if we get back to a point where maybe the organic goes back to 3%, 4%, what type of margin expansion you think you can deliver in that type of environment? Because you talk about India, you talk about -- it seems like they're still -- even though you've delivered a lot, it seems like there's still a lot there in terms of productivity benefits. But just any thoughts you could offer on that.

Yes. Just let me give a thing. We've got 125 projects on 5 pieces of paper that the teams are actively working on a day in and day out basis. The teams have as they're putting together their budgets for next year and their dominant priorities, the initiatives in order for us to get better are substantial, each division probably has 25 imperatives that they want to work on. And it's -- but remember, it's a combination of lowering our cost but improving our quality at the same time. This is a fragmented business. There's a lot of different -- it's not a singular business. We have hundreds of businesses inside. So it's about making our quality better at the same time reducing our cost. And just -- I'll tell you the gearing on it, just in terms of labor differential. It's about a savings of about $70,000 per person, in order to do it in our centers of excellence, than it is to do it in a branch office someplace. So there are substantial savings there. We have 10,000 people in our offshore centers of excellence right now. I know that for us to hit $20 billion, we're going to need 26,000 people there. As we march to $20 billion of revenue. We also know the number of acquisitions that we need to do. So we can put them into the pipeline. So if our objective is to be a $20 billion franchise, over the next 5 years or something like that, we know the metrics that will drive the outcomes of that. Talking about the efficiency and what it means in a downturn, what I'm really interested in, first of all, rate -- I don't see it in India. I think the next couple of months will be indicative of what's happening in the casualty space. So I think that you could have a casualty. I don't want to say crisis, that's a bad word to use, but if you have it similar to what we saw in property, over the last couple of years. I'm really interested. As soon as that rate starts to drop just a little bit, I think we're going to get so many appointments to show our wears on why we can harvest that for our customers. I could postulate that our new business offsets the downturn in the rate impact. Because I think that last time we had a -- a little softening in the market, we had none of these tools to speak of. So now we have these tools at the point of sale. I think we'll win more. And that might change that drop to 3% or 4%. And so I don't know if it will go there. I'm hoping not. And I think that's true...

Actually just -- that was my follow-on question to your point. Like the last hard to soft market, the organic revenue more went to like 0%. But you have all these new tools today, even I think Patrick spoke about how in prior hard markets, you saw your retention go down, your retention is actually staying flat or going up. I guess that would be the question versus, say, 15 years ago, do you think the organic -- the organic revenue that you can sustain in a softer market is higher today?

I think we're going to win so much more. That's just my belief. Sit down and take a proposal from one of our folks and the technologies, the ability to give you comfort that I'm putting you with the right carrier and making the recommendations. It's compelling. I think we will win over and over and over. And I think that our competition is getting tired. I think that's the reality of it. We compete 90% of the time with brokers that are substantially smaller than us. And I just think that we'll win at the point of sale. We've always said that this is -- it's a baby boomer industry and the baby boomers are starting to boom, I'm part of it too Moss.

Mike Ward at Citi. I was just curious, I just had one on the tax credits. It's pretty meaningful, and I know it's helping with free cash flow and M&A. I guess just wondering if there is anything else in the works like that, don't hear it elsewhere as much. So just kind of curious about that component.

All right. Great question. What's the future of taxes. First of all, we got $1 billion to use. So I'm not in a big hurry to generate more tax credits today, that cost cash today for utilization in 6 years. So -- but we do have some projects we've got a nucleus of people that have been around this project of 5 to 6 people, that are trolling for opportunities. Systemically, the Inflation Reduction Act, IRA, created substantially more favorable ways to generate and use tax credits than the predecessor laws were. So, remember, we don't do loopholes. That's not what we do. We do federally sanctioned tax credit investing. Wind, solar, clean energy, hydrogen, fusion. All those things are wrapped up into new laws in Section 45Q that will make it easier for us to find projects and use our tax credits. Not in a big hurry for it. I think that -- and we also are looking for projects where we can get developer returns, not just putting $1 in, to get $1.15 back. And that's not what we do. So -- but right now, I'd like to spend the $900 million first and then keep the team working on trolling for a new opportunity. And we want production credits on that. So that's what the team is doing. But call it, I think you'll see next year, we'll spend $8 million or something like that to run that group. And we always have to -- we have a cleanup of the old law too that we're doing. So it's not a big investment for us, but I like them trolling out there to see what they find. And you'll be the first to know. We won't surprise you with it.

This is Rob Cox with Goldman Sachs. Doug, you commented that you're not worried on a dramatic downturn in rates. And you had your comments on casualty. And I think a number of the business leaders also mentioned perhaps this renewed worry about social inflation. So I guess my question is, in your belief, will we see casualty pricing reaccelerate on the back of this into 2024? And how should we think about the magnitude of that?

Yes. And, I think you heard bottoming and kind of D&O and cyber, I think general liability is a tough line, I think trucking is a tough line. So I don't have a pick on it right now, but I'm kind of looking in the past. It wouldn't surprise me that you'd see kind of across the board 10% to 15% need in casualty in that kind of range. I don't see it being -- I don't think casualty is one of those things you're going to wake up tomorrow and have it up 50%. But I think you could have a nice tailwind there.

I'm just curious. So produce your income, it's been a nice tailwind for margins and earnings the last couple of years. It looks like it may potentially trend the other way if the Fed starts cutting rates here in 2024. How should we think about that from a headwind to potential margins? Is there any math that you can kind of say, yes, 100 basis points is potentially this much headwind on margins?

All right. So first of all, I just want to make sure everything we talk about in organic does not include investment income. I probably should have said that or maybe somebody did when I was out of the room or something, but that doesn't include organic. I see it as we're pulling our budgets together, we've kind of assumed investment income is flat year-over-year. How much do I think will soften, we'll know today at what 2:00, what the next thinking of the Fed is. But we're assuming basically same -- an equal amount next year as we had this year. So I'm not seeing it as an accelerator or deceleration either way. How do we look at that? I mean you have to -- for every dollar that we get in investment income, it means that there's inflation in some place else. Now we've talked about, how we don't believe that 40% of our business -- of our expenses is inflation sensitive at all. 40% of our expenses have a small bit of inflation, as in and we have about 20% of our expenses that does have some inflation risk in travel, entertainment, consulting costs, professional fees, that you pay, that's wage sensitive on that. But it's a small portion of our expense load. So some of that investment income, the real question would be is what happens to the inflation on those expenses on that 20%? And I will tell you this is one thing that this is important as you want to think about the health of our franchise in this company, we have not cut raise pools. We have not cut bonus expectations. We're paying our people along this process, and we've done a really good job of making sure that our workforce is well compensated in light of the inflation they may be suffering. You don't see it in the numbers because we've been growing a lot, but we've done a really good job of taking care of our folks. We don't have a retention problem. In fact, our retention levels are equal to what they were in 2019, maybe even a little better. So we're paying our people for the work they do and some of that comes from the investment income on. So it's not like it all drops to the bottom line. So -- how much -- if all investment income goes away, you would see raised pools probably go back down to like 2018 and 2019 levels versus the kind of that 2x right now, as a percentage of salary.

Doug, in the CFO commentary, the rollover revenue of $182 million in the fourth quarter. Should we assume that's the number?

Yes. I don't think we'll get much done between now and the year that would move that because I close between now and the end of the year, I'd pick up a week's worth of it. So it just -- it would have -- that's actually a nice reminder, Mark. I think that that's something that if I were just to say, "Hey, double check on your models, just always look at the rollover revenue. It doesn't change that much in the next 2 weeks in any quarter. So thanks for the heads up on that. But use it.

Just a quick question, and you touched on this in answering Brian, but the sense is there's been a war for brokerage talent, over the last few years, at least since the Aon, Willis Towers lost deal was announced. Is that subsiding at all in terms of what you need to pay to attract people?

No. Listen, I think that we're out there telling our story about what they get more with Gallagher. If you're just a producer that has a general book of business, I don't know if that's really going to resonate to come to Gallagher. But if you're in a niche practice, you want our niche resources, you want our tools and capability, I think that we have a compelling offer. And remember, we pay them, based on what they produce. So it's not like we're doing salary and bonus. You sell it, you get a percentage of it. And so for us, that story, if somebody wants to be a true producer, and wants to get paid -- which to kill, so to speak, then I think they were a pretty good home for that. And we honor noncompetes. So we're not out there doing team lifts. We enforce our noncompetes pretty viciously -- vigorously and viciously. So -- but there is a war for talent out there.

Okay. But no change?

No. No, I would say it's been that way. David?

David Motemaden, Evercore ISI. Just a question on the audit premiums and endorsements and that's continued to be a tailwind. Just wondering how much of a tailwind has that added to organic growth and how you guys are thinking about that?

I think positive net, net-net positive, right, on this. Maybe it's added 0.5 point of organic. So it's not meaningful in turn. If you post to 9.5% and it's 9.1% or 9.6%. I'm taking a guess I'd probably look at Ray or Sarah, they may remember what those numbers, but that would be a pretty close guess, for me on that.

Great. And then just a follow-up just on the reinsurance business. So last quarter, 20% organic growth. I think it was like 13% year-to-date. How are you guys thinking about that business into 2024 that's baked into the 7% to 9% ?

I think that we're probably assuming close to double digits, like -- this isn't one of those things we're assuming 20%, we're not assuming one. So I'd have to look at what the most current iteration is, but it's 10%. I -- a slight contributor to the story. Now we're going to hold ourselves to a higher standard than that, but that's something that, I would say in a budget is probably a prudent number to use.

Yaron Kinar again. So since you brought it up, I do want to pick your brain a little bit on AI, 3-part question, if I may?

Let me get it out and record you and then I can answer you.

I think pretty simple though. So one, when do you think it will be commercial as opposed to maybe more of a pilot program? Two, do you think that it will be mostly built and or will you be using more third parties to utilize AI? And three, we're starting to hear some regulatory concerns, at the state level. I think specifically with discriminatory practices around underwriting, but ultimately, could we see those concerns going to client acquisition and targeting?

Yes, I think the governance aspect, I'm gong to work backwards. And I think it's something that we've got to take a really, really close look at it and what that's going to do. If many states aren't allowing you to pull credit in order to underwrite auto, I just don't see them saying, yes, go ahead and use AI. So I think those are going to be challenges on the underwriting side. For me, I'm looking at it more so from service tech. If you think about our business, so much of what we do is service what's sold, right? It's a huge portion of our expense structure. And to me, to be able to bring -- to me, AI is quality. It brings a quality and speed. The second thing is speed to delivery. Joel Cavaness business, on wholesale, I think that we can turn it around quotes so much faster using AI to extract information give it to us on opportunities that come in the door and then spit it back out timely. Speed to quote is a competitive advantage in the wholesale business, all right? So that's a big thing. Service tech policy review. We're reviewing hundreds of thousands of policies a year to make sure coverage is right, to make sure that terms are right, to make things compare and contrast why is it that this bakery has these provisions, but this bakery doesn't, we'll be able to use AI to extract that and compare. And we do that manually now. So -- but again, it's going to be applied to the same repository of information that we use to deliver work into our centers of excellence. So now we'll just run AI into that. So we don't have to create a document management system. We don't have to create a data lake, so to speak, or a repository for that. We'll need some hardware for that, but we already have the funnels down to push it into a spot, where AI can be deployed into it in a very efficient fashion. So I think that's the second part of it. And how much -- I see it on the service side, initially more than the sales side. I do believe there's some regulatory concerns, so we want to be careful to follow what the rules are in states, and that will evolve quickly. But I think it's a technology that has a place in a broker, in particular. We don't manufacture our own product. We accumulate all the manufacturer's product into a spot and then we process it and digest it and forward it on. So to be able to gather that information and really analyze it, we're going to be able to look across, all the manufacturers on the product, very quickly because the machine is going to do it for us.

If the machine [indiscernible] Will you be using your algorithm?

Yes. Here's the thing. I think that we have our own instance of it inside right now. And -- but we -- obviously, that's going to come from a third-party provider that will probably use or will use several of them to do it. So it's -- XL in and by itself isn't an important tool. It's what you put into XL that matters. So I don't know if I care that we have to build our own AI. I'm not building a new workbook.

All right. Well, Pat, maybe get back to if there's any last minute questions. And then if not, we can wrap up the meeting.

Yes. Thanks to my team. I think everybody did a very nice job. I appreciate it. Proud of you guys. And any questions for me. before we wrap up. Well, I look out in the audience, I don't see any hands up, so that's good news for me because then I don't get stumped. I want to thank you again for coming and wish you all a very nice holiday. When I look at the crowd, I see some new faces, I see some old faces. And when I look at our returns, and some of the people who have been following us, I feel really good about that. Over 3 years, we've developed about 124%, overall return 5 years is 230% in over a decade. We've returned about 550% to our shareholders. And I would tell you that one of the messages this team gives to their people every single time they meet. Last evening, I had a chance to meet with what we call our cocktail club at our New York office. And these are all people under 40 years old, basically that are coming up in the organization. Those are the people that sit on our panel today average over 20 years of experience with Gallagher. And that's what we're building in the future. So Doug mentioned the flywheel, which is a Jim Collins analogy, in terms of how businesses grow and get stronger. I think we're really building that. I think you can see that through the pandemic and how we grew. When I took over as President and our stock was $8. And I think we're substantially greater than that today. I look forward to the next 30-plus years and think that we'll do that again. So thanks for being with us today. Really appreciate it, and look forward to talking to you in the new year. Take care.