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

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

Thank you. Good morning, everyone. Thanks for joining today's call. We appreciate you taking the time today to hear more about the Gallagher story outside of the busy earnings season. As I said in the past, these regular meetings provide you the opportunity to learn more about Gallagher, hear from our various leaders and digest some more recent data points on our performance. So let me walk you through the format of today's meeting. I'll begin with some brief prepared remarks covering Gallagher's competitive position, the market backdrop and our organic expectations for the full year '24. Then our leaders will each speak for 5 to 7 minutes, providing background information on our business, insights into various markets and cover relevant growth and operating initiatives. Our leaders will also give you some indications of how the first quarter is playing out thus far. Then Doug Howell, our CFO, will pull all the comments together and provide some financial commentary. Prepared remarks should last around 1 hour. After that, we will open up the line to the group dialed in for questions and answers. So with that out the way, let me begin by telling you that I believe the business has never been in a better position to compete and win. As I look across divisions, geographies and our product and industry verticals we're in a very enviable position. We've built an exceptionally strong team with leading talent and expertise and have a wide global reach. We have a fantastic growth outlook both organically and through mergers, and our profitability profile remains excellent. We are a global insurance brokerage, consulting and risk management juggernaut. We generate substantial cash flows that allow us to reinvest in our business to drive organic, fund our proven merger and acquisition expansion strategy, provide really competitive compensation to our team, pay a nice dividend and promote our brand and culture. We have client capabilities in approximately 130 countries and more than 52,000 employees providing highly sought-after advice and exceptional service within the insurance, human capital and claims management space. As I look out 3, 5, 10 and maybe even 25 years from now, the growth opportunity for Gallagher is enormous. According to Swiss Re Institute, there's around $7 trillion of annual insurance premiums globally, including life, health and P/C. And these premiums are growing every year through economic expansion, increasing insurance penetration, price increases, emerging risks and new products. Last year, Gallagher touched approximately about $100 billion of that $7 trillion. And you need insurance for everything. I described insurance as the oxygen of commerce. And that is what it is. Whether it's operating a restaurant, shipping goods via railroad or cargo ship, sending satellites to space or even driving a car, you can't do any of these activities without insurance. Just growing the global premium base by 1% would suggest $70 billion of new insurance premium every year, equivalent to the annual premium of some of the largest insurance carriers in the world. So I believe Gallagher will grow along with the industry, and more importantly, we will grow by taking market share. The team will walk you through various growth initiatives they have -- we have going on today. The takeaway you should come away with is that Gallagher can grow in just about any environment. There's also a tremendous opportunity to grow through mergers and acquisitions. That's because the industry remains very, very fragmented. With some estimates, there are tens of thousands of agencies and brokerage firms across our major geographies. The U.S., U.K., Canada, Australia and New Zealand and even more globally. Most of them are still family-owned, have less than $25 million of annual revenues and adding them to our platform can create value for their clients and create clear opportunities for their employees. They can also leverage our niche experts and join our culture. All of this creates terrific and consistent returns for our shareholders. We are also improving our competitiveness by increasing productivity and raising quality. We're already operating at attractive margins, but we believe we will always be able to get better, faster and smarter. We have a cohesive sales and service process, common systems, which allow us to better harness the incredible amount of data we have. The team will highlight how we are harnessing technology, data and analytics, all while delivering more insights to both our clients and prospects in their comments today. And don't forget, we continue to leverage our Gallagher Centers of Excellence. Here, we can more quickly embrace digitalization and look for ways to automate various aspects of our business. Needless to say, we see the potential for further margin expansion in both segments during '24 and beyond. All that said, our biggest competitive advantage is still our bedrock culture. It's an aggressive, sales-oriented and customer service-focused culture, underpinned by doing what's best for clients day in and day out. We have fun doing it, and we have a great place to work. So our value creation strategy is simple and based on 4 objectives that I've mentioned many, many times before. Number one, we're going to grow organically; number two, we're going to grow through mergers and acquisitions; number three, increase our productivity, raise our quality; and number four, constantly promote our Gallagher special culture. This recipe has produced total shareholder returns as of year-end '23 of 88%, 228% and 496% over 3-, 5- and 10-year periods, respectively. And all of these returns outpaced the S&P 500, the XLF and the S&P Insurance Index. Okay. Moving to an overview of the market. A few observations worth highlighting. First, we continue to see renewal premium increases across nearly every line globally. So not much change to the firm to hard-ish market we've been describing for quite some time. We like this market. It's behaving rationally. Carriers know where they need rate by line and geography, and we're seeing that in our data. Take property, for example. Even with pricing and exposure adequacy showing some improvements for other carriers, renewal premium increases are at double-digit levels. At the same time, concerns around casualty rate adequacy are getting louder. General liability, umbrella and commercial auto year-to-date renewal premium increases are in the high single digits. And while changes in the liability can take longer to materialize, we are already seeing higher renewal premium increases within U.S. general liability versus '23. So in total, primary insurance renewal premium increases so far in the first quarter are up over 7%, and we're feeling there could be a tick up to that over the remainder of the year. That's because of business mix, less workers' comp and more property in the remaining 3 quarters and the potential for renewal premiums in casualty lines to move higher. Second, we're not seeing any indications of meaningful economic slowdown within our data. Our daily brokerage revenue indications are showing year-over-year growth in the quarter. Additionally, Gallagher Bassett's core workers' compensation and general liability claim counts, which are typically tied to business activity, are growing nicely year-over-year. Third, there continues to be a significant U.S. labor market imbalance, while at the same time, medical cost trends are rising. Employers are focused on overall benefit costs and emphasizing a total reward strategy to help them achieve their human capital goals. So I see demand for our benefits products and services remaining strong. So increasing global renewal premiums, labor market challenges, growing claim costs and resilient economic backdrop, combined with a more rapid systemic shift to clients expecting deeper data-driven expertise all create conditions that should be supportive for excellent revenue growth. As we sit here today, there is no change to our full year '24 organic outlook. It's still looking like our Brokerage segment organic growth will be between 7% to 9% and our Risk Management segment organic between 9% and 11%. That level of organic in both of our core businesses would be fantastic. So let me give you some quick sound bites of what you'll hear from the team today. Mike Pesch will tell you our U.S. and Canadian retail P/C businesses are performing very well. Net new business spread, renewal premium changes and midterm policies adjustments continue to be up year-over-year. Patrick Gallagher will tell you our international retail and London specialty operations are performing exceedingly well. Here, we are expecting another year of strong growth. Then Joel Cavaness will tell you our U.S. wholesale operations are seeing terrific growth as well. Open brokerage renewal premium increases continue to exceed retail, and overall net new business remains excellent. Tom Gallagher will tell you that our reinsurance unit had a great 1/1 renewal season and is well positioned for April 1 and midyear renewals. Tom will also dive a bit deeper to our global M&A strategy and outlook. Then you'll hear about our employee benefits and HR consulting business from Bill Ziebell. He will tell you new business and retention trends within our core health and benefits business are strong and that we see solid demand for our consulting services. Scott Hudson will tell you our third-party claims administration business, Gallagher Bassett, is well positioned for long-term success with industry-leading tools and technology results in superior outcomes and continued growth. Then our CFO, Doug Howell, will bring it all together and tell you what we think this means financially for the first quarter and the full year. I'll stop now and turn it over to Mike Pesch, who's going to discuss our U.S. and Canadian retail P/C brokerage operations. Over to you, Mike.

Thanks, Pat, and good morning, everyone. I'm Mike Pesch and today, I'll be covering our U.S. and Canadian retail property and casualty brokerage business. My prepared remarks this morning will touch on 3 topics. First, I'll provide an overview of our North America retail P/C brokerage business. Second, I'll discuss current market conditions. And third, I'll give you some early indications of how the first quarter of 2024 is shaping up so far. Starting with an overview of our U.S. retail operations. During 2023, we generated $2.5 billion of revenue, making us the third largest P/C retail broker in the country according to Business Insurance. Today, we have around 10,000 employees and placed more than $18 billion of premium annually. Within Canada, we are a top 5 commercial broker, operate in 8 of the 10 provinces, have around 1,200 employees and generate around $300 million of annual revenue. Our U.S. and Canadian retail businesses are very similar, serving clients of all sizes. We have a terrific array of large risk management clients, yet the vast majority of our clients are in the middle to upper-middle market. One might say our client mix is very representative of the U.S. and Canadian economies. Our middle-market client insurance programs are typically between $100,000 and $2.5 million of premium, which translates into roughly $10,000 to $250,000 of annual revenue to Gallagher. We also have a meaningful small commercial affinity and personal lines customer base, including high-net-worth clients. We find the middle and upper-middle market particularly attractive, and that's because these clients typically have complex insurance needs yet they don't employ a dedicated risk management professional. So they rely on our experts to identify and evaluate risk on their behalf, and of course, find the right markets to place their insurance coverage. It is the foundation of our client value proposition called CORE360. CORE360 focuses on the 6 key cost drivers of the total cost of risk. This approach resonates with companies looking for risk management and insurance solutions and embeds Gallagher inside our clients' business. Our ability to analyze the key cost drivers is strengthened by our various niche practice groups. We have 30 different product and industry verticals where we have subject matter experts with specialized knowledge and deep insights. Leveraging these practice groups with our proprietary data, we better understand the unique risk characteristics of different businesses and can tailor products to those industries. These niche leaders work side by side with our producers in the field, making sure we are identifying and addressing the distinct risk that those industries are facing through focused offerings and coverages. We believe this approach to risk management and insurance procurement is a competitive advantage. And I would be remiss not to mention our national risk control group. We have more than 300 professionals working with our clients to develop safety protocols and risk management programs while also assisting in claims resolution and advocating on behalf of our clients. Our industry experts, top leadership, online tools and web-based industry discussions continue to generate new client leads and revenue opportunities. Through growing webinars and our CORE360 Insight series, the team explores a wide range of topics, such as DE&I, property risk strategies and climate resilience. And we are adding valuable content to our website all the time, including our CORE360 Flashcast. These condensed events cover various industry-related topics, such as our cyber risk predictions, safe driving essentials, promoting a positive workplace and navigating the property insurance market. Importantly, these learnings can be accessed 24 hours a day, 7 days a week, allowing our clients and prospects to tap into our network of experts at their convenience. And at any time a client or prospect engages with any of the online content, our producers are notified. Moving to technology. On top of many enhancements to Gallagher Drive and SmartMarket, which Patrick will speak to next, we have launched Gallagher Submit, which is our online client renewal platform. Here, we are harnessing technology to reduce the friction in the renewal process for clients. And with many of our carrier partners embracing digital engagement, it's making the quote process easier and more efficient. We believe this is having a positive impact on both client retention and new business activity. Sticking on the technology front. We are beginning to harness AI to further streamline the work within our Gallagher Centers of Excellence, including tasks like policy checking and issuing certificates of insurance. We are also redeploying these efficiency gains on the sales side, where our service teams can help gather and check data and provide proposal support for renewals and new business activity. Our efforts over the last 2 decades to standardize our processes and unify our technologies prepare us better to quickly harness the power of AI. And don't forget, we are competing with someone smaller than us 90% of the time. These local brokers just can't match the value we provide. Moving on to my second topic, insurance pricing. Not much has changed in the past 8 weeks. And overall, our customers continue to experience renewal premium increases in both the U.S. and Canada. For many of our clients, this is the third or fourth year in a row of increased premiums across most lines of business. Beginning with the U.S. So far in the first quarter, renewal premium changes, now that's both rate and exposure combined, are up about 7%. An important note: while 7% is down a couple of points from fourth quarter, a lot of that is due to mix. There's less property business and more workers' compensation renewing in the first quarter. And 7% is what we saw last year for the first 2 months of 2023. Let me give you some flavor by line of business. Property, up 11%. While market commentary tends to focus on hurricane activity, carriers can't ignore there are more than $60 billion of secondary perils cat losses in 2023, mostly related to convective storms. It is rational that carriers continue to tweak their property pricing and exposure management strategies for those risks as well. General liability is up more than 9%; umbrella, up 9% as well. Workers' compensation is up 2%. Cyber and D&O are seeing single-digit declines, but more and more, we are hearing that we may be reaching a bottom in these 2 lines. Moving to Canada. Renewal premium changes are up about 3%. We are seeing more modest increases in property, while liability lines, such as general liability and commercial auto, are closer to flat. So to wrap up the market. We continue to see rational carrier behavior, underlying a market that continues to ask for premium increases across the U.S. and Canada. Pricing does vary by client experience. Good accounts get some relief in certain lines. However, accounts with poor experience are seeing greater increases. That is a terrific market for us to show our data-driven capabilities. Client by client, we help them get fair pricing for their unique risk profile. And in turn, that helps carriers price their coverage to achieve their expected returns on a line-by-line basis. I call that a win-win. We never forget that our job as brokers is to help our clients find appropriate coverage that aligns with their risk tolerances while mitigating price increases to ensure their risk management programs fit their budgets. And I believe we have the best team in the industry to do just that. And finally, I'll conclude with some thoughts on what we are seeing so far in the first quarter. Through the first 2 months of the year, we are seeing renewal premium increases consistent with last year's first quarter. Net new business spread better than 2023 levels; a slight headwind from less nonrecurring business in Canada; and a nice tailwind from midterm policy adjustments, including higher audit premiums and positive policy endorsement. So based on what we're seeing thus far, we think first quarter organic will be somewhere between 7% and 8%. Looking ahead, I'm very bullish about our near- and longer-term prospects. Our client-first, sales-driven culture, combined with our leading group of niche experts armed with the data-driven insights, puts us in a position to consistently win. Okay. I'll stop now and turn it over to Patrick Gallagher, who is going to discuss the remainder of our major property/casualty retail operations in addition to one in specialty. Patrick?

Thanks, Mike, and good morning, everyone. This is Patrick Gallagher, and my comments today will focus on our retail P&C units in the U.K., Australia and New Zealand in addition to our London specialty business. Similar to Mike, I plan to touch on 3 topics. First, I'll dimension each of these businesses. Second, I'll discuss the P&C pricing environment, and then I'll finish up with some comments on what we are seeing thus far in '24. Starting with international retail. Overall, we operate in 60 countries globally and have client capabilities in an additional 70 countries. Mike already covered Canada, so our other larger retail operations are concentrated in the U.K., Australia and New Zealand. In total, these geographies combined finished 2023 with more than $1.3 billion in revenue, placing around $8 billion of premium on behalf of clients. Breaking them down further. In the U.K., we are a top 5 retail broker and generate more than $700 million of annual revenue across 80 offices. In New Zealand, we are either first or second. And in Australia, we are in the top 5. Taking together, these 2 countries generate around $600 million of revenue annually across approximately 70 different locations. Importantly, each of these platforms are leveraging the same tools and techniques we use in the U.S. They also use our Gallagher Center of Excellence for various portions of their client servicing efforts. In these countries, our retail sweet spot is also middle to upper middle-market clients, similar in size and complexity as our U.S. customers. We also serve a wide range of large account business, small enterprises and high-net-worth personal lines clients. By design, our sales techniques and tools near that of the U.S. But equally as exciting are the new learnings and ideas from around the world that come back to the U.S. and help us get better there, too. For example, Mike's U.S. small business strategy mimics our approach from Australia and New Zealand. Let me give you some further examples of our cohesive global retail strategy. First, CORE360, which Mike just covered, while we introduced CORE360 8 years ago as our U.S. go-to-market strategy, it is now our global retail value proposition. It's the foundation of our risk management discussions with clients and prospects. Second, our niche practice groups. Many of these are organized and utilized at the global level, allowing clients all around the world to benefit from our deep industry knowledge and expertise. Examples include energy, real estate, hospitality and marine. Third, our data and analytics platform, Gallagher Drive, continues to further differentiate us versus the competition. Insights we are able to provide clients include trends of other Gallagher clients around the globe from what lines of coverage are purchased, limits ultimately bound as well as potential catastrophe exposure and claims forecasts. Given the success we are having, producer utilization continues to increase. And finally, SmartMarket. Like many of our enterprise-wide tools and platforms, it too was originally developed in the U.S. Today, SmartMarket is being utilized by more than 20 non-U.S. markets. So our unified global retail strategy allows us to develop a product, a process or a new sales tool and deliver it uniformly across our global footprint. And don't forget, 90% of the time, we are competing against the small local or regional brokers. They just can't match the offerings, insights, expertise or service anywhere around the globe. Now shifting to London specialty. Our leading franchise has roots dating back to the mid-70s. Here, we focus on larger commercial clients and also support retail agents and brokers around the world, placing specialty insurance solutions across 6 main trading divisions: aerospace, marine, financial lines, construction, energy and property. Our 1,100 colleagues generate more than $600 million of annual revenue and place around $6 billion of premium annually. We have a number of exciting growth initiatives within specialty. Let me provide you with a few examples. First, we are expanding our niches and specialisms. Here, we are looking to deepen our capabilities, market relationships and products in areas like mortgage and cyber. Second, we are looking to onboard and develop new talent, colleagues that will add to our expertise across our 6 specialty trading units, including leveraging our graduate program we call Gallagher Futures. Third, our SmartMarket platform. We have already signed up a number of London specialty markets and believe there will be additional carrier appetite through '24 and beyond. Ultimately, we believe we will be able to trade with participants more efficiently. Now moving to my comments on the insurance pricing environment. Let me discuss what we are seeing so far in the first 2 months of the year. Starting with retail. In the U.K., renewal premium changes both rate and exposure combined are increasing about 9%. Commercial auto is up 15%. Property is up 11%. General liability is up 9%. Professional indemnity is off in the mid-single digits. Renewal premiums in Australia are up 8%. Most lines are seeing high single-digit increases, and even D&O is up 4%. New Zealand's renewal premiums are up 17%. Most lines are seeing mid-teens increases, while cyber and professional lines are up 9% and 6%, respectively. Going back to the U.K. Our London specialty operations are continuing to see renewal premium increases somewhere in the mid- to high single-digit range across many classes. Property classes, particularly North American cat-exposed property, continued to lead the way from a price perspective, while insured values continue to rise. Casualty market increases are more subdued, but underwriters are being cautious on U.S. casualty classes. There is an increasing appetite from carriers to write business at what is deemed to be attractive prices, including property. Nevertheless, there continues to be underwriting discipline. Bottom line, we just aren't seeing much change in the market from late January. Let me finish up with some additional observations from the first quarter thus far. New business production is ahead of last year, and at the same time, revenue retention remains strong across London specialty and our major international retail geographies. Pulling it all together, I see a first quarter organic for our U.K., Australia and New Zealand retail and our London specialty units in the high single digits. So these businesses continue to perform very well, and we remain excited about '24 and beyond. Okay. I'll stop now and turn it over to Joel Cavaness, who's going to discuss our domestic wholesale brokerage operations, known as Risk Placement Services. Joel?

Thanks, Patrick. Good morning, everyone. I'm Joel Cavaness. My comments today will focus on Risk Placement Services or RPS for short, which is our U.S. property/casualty wholesale intermediary. Following the same cadence as Mike and Patrick, my prepared remarks will focus on 3 topics. First, I'll begin by providing an overview of RPS. Second, I'll give some comments on the market and pricing environment in the wholesale space. And third, I'll wrap up with some observations related to the first 2 months of the first quarter. RPS was founded in 1997 and has grown both organically and through M&A and today is the fourth largest wholesale broker in the U.S., placing over $6 billion of premium on behalf of our clients and generating annual revenues of about $700 million. As a wholesale broker, our customers are independent agents and retail brokers that need unique or differentiated products, specialized capabilities and access to our carrier relationships. We were established to solve the insurance needs of all retail agents and brokers, and around 75% of our business comes from agents and brokers unrelated to Gallagher. RPS offers solutions to our clients through a couple of main businesses: open brokerage and MGA programs. And let me walk you through each one. Within open brokerage, we support retail brokers with access to specialty products. We find coverages and negotiate with insurance carriers on behalf of the retailer and their client. The types of insurance that we tend to be very specialized can range from hard-to-place property to complex casualty lines. Placements in open brokerage tend to involve multiple carriers in order to fill out a particular program. Next is our MGA and our program business. Here, we underwrite price, bind, collect premium and issue policies on behalf of insurance carriers. And importantly, we do not take any underwriting risk. We have around 40 programs spanning across both commercial and personal lines coverages. Within commercial, we have programs ranging from food delivery vehicles to coverage for country clubs. Our personal lines programs include insurance coverage for nonstandard auto, manufactured homes and other low-value dwelling. We compete against a wide range of insurance intermediaries from other wholesalers to MGAs and program managers, but our clients tend to choose RPS because we're easy to do business with, responsive and have a wide breadth of products and strong carrier relationships. We're constantly engaging with our retail clients and soliciting feedback so that we can further improve our service, grow our product suite and expand our offerings. We also have a client relations team that provides concierge-level service to our larger, more national retail partners. Ultimately, our goal is to be the recognized leader in the insurance intermediary market by providing a wide range of products and services across a broad distribution platform. So Mike described the continued challenges within the retail P&C market. And with retailers needing help to place coverage, that is typically a growth tailwind for RPS. So helping our customers quickly and efficiently find products, capacity and coverage is paramount. In fact, we established our e-commerce platform in 2017 to allow retailers to more efficiently interact with RPS. Today, our retail clients can access more than 30 distinct specialty products through an online interface, and we expect that number to grow over time. We're also leveraging the data on the $6 billion of premium that we place in the market, and we're expanding our client-facing data and analytics platform. Our size, combined with our infrastructure, allows us to utilize this data to better provide advice to clients and develop new products and programs. It also helps us manage our own business through more timely insights into our own operations. Working across divisions, we have developed and launched 2 new programs in 2024: one within commercial trucking and another for excess casualty. What's really cool is that both of these programs are utilizing Gallagher Re for reinsurance, while we're utilizing Gallagher Bassett for handling the claims. It really highlights the power of Gallagher. You also heard Patrick talk about SmartMarket platform, which allows a more efficient matching of carrier supply and customer demand. We have a handful of E&S markets using the platform, and we think that we'll add more carriers over the course of '24. So our investments in technology and digital interactions with clients and carriers is positioning us to an even more attractive partner. So moving to the U.S. market environment. The E&S market continues to show strong growth as risks, both personal and commercial, are migrating away from the admitted market. We don't see any signs of that changing. And combined with ongoing exposure growth and rate increases, we expect a high level of premium growth to continue for the foreseeable future. In fact, during the first 2 months of the first quarter, our data is showing open brokerage renewal premium increases up about 10%. Property renewal premiums are up about 16%, umbrella is up about 10%. Most other lines outside of D&O are up low single digits. While capacity is available for most commercial risks, our carrier partners are still unwilling to deploy large lines on any one risk, making large and complex insurance towers more difficult to place. Across our homeowners and auto programs, we continue to see double-digit renewal premium increases. Carriers continue to evaluate their exposures to homeowners, business in cat-exposed areas, including wind, wildfire, flood and convective storms. So finding capacity for these risks can be very challenging. Moving to our binding operations. We're seeing 8% renewal premium increases so far in the first quarter. That's at the high end of the 6% to 8% renewal premium increases we've been seeing since mid-'22. Overall, we would continue to characterize the wholesale market as difficult. Let me finish with a few more data points from January and February. First, new business production is up nicely over prior year with client retention similar to last year. Midterm policy adjustments including policy endorsements and audits are also trending better than last year's levels. So bringing it all together, it feels like the first quarter organic for RPS will be between 12% and 14%. And in summary, let me continue to help our clients navigate challenging market conditions, and I believe we've never been better positioned. The E&S market is poised for continued growth, and we should capture through our deep and growing portfolio of products, expertise, carrier relationships and outstanding service and with our data and analytics that allow us to provide valuable insights to our clients. I believe that we've built the best U.S. wholesale intermediary, and we're in a great position to deliver another excellent year at RPS. So I'll stop now, and I'm going to turn it over to Tom Gallagher, who's going to discuss our reinsurance operations and our global merger and acquisition strategy in greater detail. Tom?

Thanks, Joel, and good morning to everyone joining us on the call. Since Mike, Patrick and Joel have already touched on our various P/C units around the globe, my comments today will focus on 2 topics: first, our global reinsurance brokerage operation, Gallagher Re; and second, I'll pivot and discuss our global M&A strategy in more detail. Starting with an overview of reinsurance. Gallagher Re was formed through the combination of our 2013 start-up, Capsicum Re, and the purchase of WTW's treaty reinsurance business in late 2021. Today, Gallagher Re is the third largest reinsurance broker in the world. Our nearly 3,000 colleagues operate from around 70 offices across more than 30 countries. The team provides advice, strategy and placement expertise on a wide range of offerings, including treaty reinsurance, facultative reinsurance and other risk transfer products to more than 750 underwriting enterprises around the globe. We finished 2023 with organic growth of 14%, driving full year revenue to more than $1 billion. Building on our success in '22 and '23, I see a lot of exciting opportunities in the reinsurance space. The team is well positioned to grow in '24 and beyond. Let me provide a few examples. First, we are working on expanding our direct and facultative reinsurance offerings around the globe. Last month, we hired a group of professionals to expand our facultative offerings. And today, we have over 35 professionals driving this business forward. Second, we are capitalizing on cross-divisional sales opportunities. We're seeing many new business opportunities, whether through Gallagher Bassett, our retail operations or our global MGA and program operations. Frankly, the ability to leverage existing Gallagher relationships has been fantastic, particularly across North America. Joel mentioned our new trucking and excess casualty programs in his comments. And third, we're adding talent and product in emerging areas and geographies. We're targeting additions to our cyber and life capabilities in addition to further expanding our reach in Europe. Next, let me provide some comments on the reinsurance market environment. As we noted on our late January earnings call, 1/1 global reinsurance renewals were orderly and reflected a more balanced supply dynamic. There were strong demand for property cat cover that was met with sufficient capacity from existing reinsurers and cat bonds. Importantly, there wasn't a large influx of capital and reinsurers continue to exercise discipline on pricing and terms, not giving back the structural changes achieved last year. Within casualty classes, there was also adequate supply. However, most casualty treaties experienced some pricing pressure. Specialty lines progress renewed close to flat with some coverage limitations continuing on war-related products. There hasn't been much renewal or cat loss activity in February or early March, and our focus has shifted towards the Japan-centric April 1 renewals. The team is hard at work helping our clients navigate a lot of the same dynamics we saw earlier this year. And overall, we expect an orderly 4/1 renewal process with continued strong demand. Within property cat, don't forget Japan had 5 consecutive years of price increases. And despite the early '23 earthquake, underwriting results have been good. So flattish property renewal would indicate the market is behaving rationally. With that said, there will likely be some modest movement in pricing that is reflective of individual buyer's exposure. On the casualty side, Japanese clients with exposure to U.S. casualty business are facing more scrutiny. Prices are likely to still be stable and terms and conditions likely consistent with prior year. Looking out further to mid-year U.S. property renewals, which are more Southeast wind-dominated, the new RMS cat model, RMS 23, is likely to increase model losses for U.S. hurricane exposure. While many insurers and reinsurers develop their own view of risk, at this point, we expect similar result to what we saw at 1/1: increased demand for coverage being met with adequate supply. With that said, it's still too early to make any concrete predictions. So demand for coverage remains strong across the market, even with strong reinsurance underwriting results in '23 and no significant large loss activity to date here in '24. There's been limited new capital entering the market, so we are not expecting much change in reinsurance market conditions in '24. We believe in this environment, our team will continue to perform extremely well. And for the first quarter, I see organic somewhere in the low double digits. That will position us for another fantastic year. Turning to our global M&A strategy. As a reminder, there are upwards of 30,000 independent agencies and brokerage firms in the U.S. alone, according to one leading consulting firm and perhaps another 30,000 more agencies globally. Most of these are still family-owned and operated. We believe Gallagher is a great home for these entrepreneurial owners looking to grow their business, add additional value to their current clients and help further advance their employees' careers. It's about joining forces, Our family and your family, believing we can be better together. And we believe that 1 plus 1 can equal 3, 4 or 5. We have proven over 700 times that a merger partner brings us relationships, market insights, creative thinking and new ideas. We get their brains, their hustle, and that makes us better. And we bring them industry expertise through our various niche leaders, access to data and analytics from Gallagher Drive, product breadth, retail, wholesale benefits, alternative markets and reinsurance, our fantastic carrier relationships, efficient back and middle office through our Gallagher Center of Excellence, and of course, a recognized brand name. And even more and more, a message that merging with Gallagher is your ultimate and final home. You don't have to change your name again. You won't have to be flipped. You won't have to cut back investments or slash your expenses to pay rising debt costs. But what they get immediately is decades of improvement all at their door the day after we close. That first day allows them to immediately bring more value to their clients and have an exciting story to tell their prospects. As talked about earlier and often, using CORE360 approach in the sales process, from how easy it will be to renew your insurance each year through Gallagher Submit or the ability to compare your insurance program to your peers through Gallagher Drive clients like me or how easy it is to get a certificate of insurance that is timely and 99% accurate and more and more and more that we continue to build. Frankly, client demand of these capabilities is accelerating exponentially. A stand-alone broker has to make a call, hope the clients don't demand it, spend 20 years building it themselves or get it overnight by joining us. The first 2 seems like a big gamble to me. It's why our pipeline is stronger than ever before. In fact, our M&A deal sheet is showing about $1 billion of revenue for mergers in various early stages of the process. The $1 billion represents nearly 100 tuck-in opportunities across retail, wholesale benefits and reinsurance and in multiple geographies, including the U.S., Canada, Australia, the U.K. and Latin America. As of today, our current pipeline opportunities with signed term sheets being prepared is 40 mergers with around $350 million of annualized revenues. While we know that not all of these will close, we believe we will get our fair share. We have a proven M&A machine that has and will deliver excellent results and returns. Okay. I'll turn it over to Bill Ziebell, who's going to discuss a benefits brokerage and HR consulting operations, known as Gallagher Benefit Services. Bill?

Thanks, Tom, and good morning, everyone. I'm Bill Ziebell, and I lead Gallagher Benefit Services, our employee benefits and HR consulting business, or GBS, for short. My prepared remarks today will cover 3 topics. I'll first provide an overview of GBS, and I'll then give you an update on the market and our execution strategies. And finally, I'll offer some early observations and takeaways from our first quarter. Okay. So starting with an overview of the business. GBS began in the mid-'70s and was predominantly U.S.-focused through most of its history but began to expand internationally over a decade ago. We entered the United Kingdom in 2010, Canada 2 years later and Australia in 2017. At the same time, we were expanding internationally. We added a multinational consulting business to help employers with operations outside of our core geographies. Today, we have a significant scale across HR and benefit services focused on emotional, career and financial well-being that is provided by more than 7,500 of our employees. During 2023, the business generated $1.9 billion of revenue, making GBS the fourth largest benefits broker and HR consultant in the world. The United States remains our largest geography and represents about 90% of our annual revenues generated from about 70 locations with the remaining 10% coming from the United Kingdom, Canada and Australia. Our producers sell traditional group insurance products, including medical, disability, life, dental, vision and various voluntary products that employers offer to their employees. We also advise on employer benefit plan design, financial projections of the plans and provide potential cost-saving strategies. These products and services combined represent about 2/3 of our annual revenue. The remaining 1/3 of our annual revenue comes from HR and compensation consulting, retirement, executive life and other similar services that help employers address their human capital and organizational well-being strategies. Most of the time, we are competing against smaller, local or regional benefit firms. And our typical clients are middle-market businesses, which we define having somewhere between 100 and 5,000 employees. However, we also serve many larger clients, providing a fresh alternative to some of our well-known competitors and also have a top-tier small group benefit business. Mike and Patrick talked about the retail P&C client value proposition in CORE360. GBS has a comparable client-centric value proposition called Gallagher Better Works. It's the approach our professionals take to explore and examine the most important initiatives and strategies that employers can utilize to attract, engage and retain talent while simultaneously managing costs. And there are a wide variety of employee rewards and benefits outside of just compensation and medical coverage. For example, employers could be making investments in physical and emotional health or enhancing financial well-being. Importantly, the solutions we recommend could be very bespoke and tailored to align with our clients' needs and ongoing human capital needs. The client -- sorry, the labor market remained resilient despite the arguably modest uptick in the U.S. unemployment rate during February. Companies continue to compete for a limited pool of talent. The latest U.S. data still shows about 50% more job openings than the number of people unemployed and looking for work. So the labor market is still very tight. Developing strategies to retain and attract talent remain very important. Our most recent U.S. organizational well-being report highlighted employee retention ranked as a top priority for operations in HR professionals this year. That plays total rewards and the employee experience in the spotlight alongside potential compensation changes, and GBS is well positioned to help our clients put together bespoke total reward packages aligned with the client goals and employee retention. In terms of medical cost trends, we are seeing increases of 7% to 8% for fully insured plans and stop loss trends into the teens here in 2024. That's due to a number of factors from increased cost of hospital and physician services to a greater incidence of high-dollar claims and the impact of cell and gene therapies and specialty medications. Recent price increases reflect these rising costs. And as carriers continue to hint at profitability pressures, we believe elevated price increases are likely here to stay for the near to intermediate term. But remember, our job is to help mitigate these increases through program design and various point solutions and services. And there are many HR and benefits issues impacting employers today, and our holistic approach through Gallagher Better Works positions us to help our clients navigate them all. Outside of the typical producer-led meetings, our thematic webinars and thought leadership continue to drive engagement with our customers and prospects, and we have found that higher engagement means higher success in winning those clients. Through the end of February, we have already hosted numerous webinars covering topics like pharmacy benefit manager contracting, employee communication strategies and financial market updates. These interactive Internet-based events are in addition to the thought leadership that we are publishing on a regular basis. These include reports focused on physical and emotional well-being, workforce planning and our results of our state of the sector report. So we continue to separate and differentiate ourselves from the competition through regular engagement with our experts, our thought leadership and web-based discussions. We can also differentiate ourselves by utilizing our in-house compensation benefits and retirement cost models to ensure companies are spending appropriately in order to maximize their goals. Many times, it's not about spending more but rather optimizing their spend. And we continue to develop and roll out Gallagher Drive, our data and analytics platform for benefits, leveraging both public and proprietary data. Here, we'll be able to provide clients and prospects insights on their HR and benefits programs, program performance and ultimately design and deliver bespoke benefit in HR solutions. Adding to Tom's comments on M&A. GBS is an experienced acquirer and focused on finding talented entrepreneurs that fit culturally and looking to grow their business. We completed 5 mergers during 2023, including our largest merger ever, net Buck, which we completed April 1, 2023, so a year ago. And that merger is going really well. We are about a year in, and our integration efforts continue to progress well. We are very pleased with client retention, and we continue to be excited about how we've been able to expand our existing client relationships. The team is making nice progress on both our expected revenue and expense synergies and overall remains on track with our plans. On the employee front, the 2 organizations are coming together very nicely. In fact, employee retention at Buck has improved as part of Gallagher. Additionally, we have identified and recognized the best leaders across the combined organization, including recently elevating a number of Buck's leaders through portions of the benefits business. So we are very happy with how the merger has progressed and excited about future growth opportunities. Shifting to some comments on January and February organic starting with the U.S., which again represents about 90% of our annual revenues. Recall, about 80% of our annual U.S. revenues related to typical coverages you get via your paycheck from your employer, like medical, dental, vision and voluntary insurance products. During the first 2 months of the year, we saw favorable new business production and stable customer retention and employee counts. Looking ahead, we see the strong labor market continuing and believe more workers entering the labor market and securing employment could be a slight tailwind for future revenue growth. Moving to the remaining 20% of our U.S. revenues, and this includes our fee-for-service individual products and retirement consulting businesses. Demand for our services and solutions remains very strong due to labor market imbalances, continued cost challenges in an effort to increase overall employee and organizational well-being. It's driving employers to engage with our various consulting practices as they prioritize strategies to differentiate themselves versus their competitors, all in an effort to retain, attract and motivate their workforce. These are really attractive engagements, but the revenue just doesn't occur as smoothly or as predictable with some of our other lines. Most of our practice groups showed nice growth in January and February. We remain very encouraged about our pipeline of future opportunities. A quick update on our life business, which was flagged in our January earnings call. Revenues can be a bit lumpier and depend on a number of factors, including the outlook for interest rates. During the fourth quarter, we were advising our clients to wait to lower interest rates in order to secure better pricing. Here in early '24, we did see about half of our delayed activity come through in the first 2 months of the quarter. The IRS's updated AFR rate, which is used to price some of these products, was recently released and increased by 5 basis points relative to prior month. So we could see clients decide to pull the trigger in the last couple of weeks of March or early April. Either way, it's a great story, and it's really just about the timing. Shifting gears to outside the U.S., which is about 10% of our total revenues, we are seeing very strong growth across all of our platforms in Australia, the U.K. and Canada. So when I combine what we are seeing across our global business, first quarter organic is running about 6% to 7%. Looking ahead, I believe our value proposition through Gallagher Better Works positions us for continued growth. Our experts have the tools, capabilities, insights and products to help clearance, navigate their most pressing organizational well-being and human capital needs. I'm very excited about our future. Okay. I'll stop now and turn it over to Scott Hudson, who's going to discuss our Risk Management segment known as Gallagher Bassett. Scott?

Thanks, Bill, and good morning, everyone. I'm Scott Hudson, and I lead Gallagher Bassett, our third-party claims administration business. For those of you that are familiar with our financial reporting segments, it's our Risk Management segment. Today, I'll cover 3 topics. First, I'll provide an overview of Gallagher Bassett or GB for short. Then I'll give some insights into what we're seeing thus far in '24, and I'll finish with a few comments on our long-term positioning. GB was formed in 1962 by the Gallagher brothers and Sterling Bassett and has grown mostly organically, and to a limited extent, through M&A. During 2023, GB generated $1.3 billion of revenue and today is one of the largest P&C third-party claims administrators. About 80% -- 85% of our revenue is in the U.S. with the remaining 15% spread across Australia, and to a lesser extent, the U.K., Canada and New Zealand. We have nearly 10,000 employees with the majority of the group working from home. Importantly, GB does not take underwriting risk but rather adjust claims on behalf of our clients. In 2023, we closed 1.1 million claims and paid out about $15 billion on behalf of our clients. That level of annual claims paid would make us 1 of the 10 largest P&C insurance and companies in the U.S. More than 60% of our claims servicing revenue is from workers' compensation claims, another 30% or so from liability claims, and less than 10% relates to property. Within the property space, we focus on specialty or complex claims and are not interested in being storm or catastrophe loss adjusters. We also have many specialty products and offerings for lines such as medical malpractice, professional liability, environmental, products liability and cyber, to name just a few of them. So we're able to provide claims services for the majority of our clients' exposures. We segment our business by client type, of which there are 4. First, we've got large commercial clients. Think of those as Fortune 500-type businesses. These clients have balance sheets that allow them to self-insure or have large deductible programs. They typically assume some portion of their own risk and outsource the claims resolution process to Gallagher Bassett. This is our most mature and largest client segment. Second, our public sector customers, including school districts, municipalities, state entities and federal governments. For example, we are a provider to the Australian state workers' compensation schemes. Third, we have a group captive or alternative market clients. These insurance entities utilize our services for their claims infrastructure. And finally, our fourth client segment is insurance carriers. These organizations choose to outsource a white label a portion of their claim handling. This is one of the fastest-growing portions of our business with around $250 million of annual revenue across 150 different carriers, both large and small. Customers choose GB because we deliver superior outcomes by leveraging our deep expertise, outstanding service and solid execution. In certain cases, a superior outcome could be avoiding a loss altogether or even mitigating a loss, but it also could mean more efficient medical care delivery, faster return to work or higher employee satisfaction. We customize our services and organize our claim handlers around client and claim type. For example, we simply don't assign a claim handler that is used for slip and falls to large truck losses. Rather, our offerings can be highly customized to align with client expectations of the best outcome. Whether it's brand protection, ensuring customer loyalty or back to work sooner, we tailor our offerings to provide more value to clients. The technology we're deploying to achieve the best outcomes in the industry is leading. It supports and complements our claims professionals and also focuses on what matters most to our clients. That includes leveraging our data to guide decision-making during a claims life cycle, easy access to claim status and financial information, performance benchmarking tools, analytical reports and easy exchange of information. It's all possible because of our leading RMIS platform, LUMINOS, and we only see it getting better as we continue to introduce more machine learning and AI to improve risk and claim management program performance. We believe that service customization combines with our size, scale and superior technology is very attractive to insurance carriers. About 90% of U.S. insurance claims are still handled by carriers today. So there remains a large potential market for our services. Many carriers are facing aging claims systems and recruitment challenges, and outsourcing a portion of their claims handling can help them alleviate these challenges. In addition to managing claims for ongoing businesses, we have runoff claim capabilities that can help carriers eliminate claims infrastructure that is no longer needed to support new or renewal policies. Our runoff services allow carriers to move a large group of legacy claims to our platform, which can result in better outcomes and reduced expenses. Another service we provide is our construction industry offering that includes integrated services across the full cycle of loss. We provide loss prevention strategies, safety training and awareness programs that are unique to the construction sector. Additionally, we offer on-site monitoring and advice from safety professionals in real time, which is in addition to the more typical claims response and resolution that GB can deliver. We continue to see interest from prospects and are planning on expanding into a few additional targeted industry verticals over time. Moving to mergers and acquisitions. Although GB is already a preferred provider with superior technology, vast product offerings, a substantial geographic reach, we see M&A as a tool to expand our offerings and expertise. With that said, the opportunity set of potential merger opportunities is narrower than on the brokerage side as the TPA industry is more consolidated. A great example of expanding our offerings and expertise is our December merger with My Plan Manager in Australia or MPMG for short. MPMG is the leading provider of claim and administration support services to participants in Australia's national disability insurance scheme, and it adds to the significant work we do throughout Australia, particularly in the state workers' compensation schemes. Ultimately, we believe this merger enhances our capabilities and provides opportunities for growth. Moving to some comments on the first quarter of '24. Let me provide you some data points on what we're seeing through February. First, new business. Our pipeline remains very full across all geographies and client segments. Regardless of client type, our prospects are responding to various cost pressures, and today's superior claim outcomes are even more important. So the new business momentum we were seeing through '22 and '23 continues today. Second, client retention. It remains fantastic. And frankly, we just don't lose much business. We believe this is a reflection of the value we provide customers through our broad offerings customized service and industry-leading tools. Third, new claims arising. So far this year, through February, we are seeing higher claim counts across workers' compensation and liability, while property is down a bit from last year's levels. And as a sound bite, when we interact with our customers, they're not forecasting an impending economic slowdown. That's good insight from our clients for our future growth prospects. Pulling it all together, we're expecting first quarter organic around 13% and adjusted EBITDAC margins of 20%. For the full year, we still believe organic will fall in the 9% to 11% range as we lap some of our larger new business wins with full margins of approximately 20% or greater. That would be another fantastic year. As I look ahead, the business should continue to benefit from our investments in new claims professionals; tools and technologies that enhance our -- or further improve the claims experience; the development of new services, including other potential integrated industry solutions; the expansion of our products and offerings, further broadening our specialty insurance capabilities to align our services with new potential customers; our efficient client-centric platform, making us the provider of choice; and our compassionate and client service-focused culture, which keeps client satisfaction at very high levels. As you can tell, I'm very excited about both our near and longer-term prospects. I'll stop now and turn it over to our CFO, Doug Howell. Doug?

Thanks, Scott, and hello, everyone. Today, I'll cover 4 topics. First, I'll recap the organic revenue comments made by each of our leaders and bring it all together for your models. Next, I'll provide some comments on our current thinking on '24 margins and give you a heads-up comment when I break it down by quarter. Third, I'll give you some sound bites from our updated CFO commentary document that we posted on our website. And then I'll wrap it up with some comments on cash, M&A and capital management. So let's go to the business unit organic revenue recap. Mike, Patrick, Joel and Tom had positive commentary on our global P&C and reinsurance brokerage operations. We continue to see excellent new business production, strong retention and a tailwind from overall market conditions, both rate and exposure. When I combine their comments, primary insurance renewal premium increases are in line with what we were seeing last year first quarter. Those increases are down a bit from fourth quarter, but that's mostly because each quarter has a different line of business mix and client mix, too. Underneath the headline, we're seeing property renewal premium increases still very high, and the rate of increase is moderating only slightly. General liability increases are now stepping higher, and it's looking more and more that meaningful casualty increases may be around the corner. So right now, it feels like our global P&C units combined might post first quarter organic somewhere in the 9% range. Then Bill walked you through our employee benefits and HR consulting business. First quarter is a large quarter due to the volume of January 1 health and welfare renewals, where we're seeing solid underlying growth, along with strong growth in our life and retirement practice unit. So overall, our benefits organic is expecting to be around 6% to 7%. So when I pull it all together, the punchline is we see Brokerage segment organic for first quarter above the midpoint of our annual 7% to 9% range, so maybe -- so 8%, maybe 8.5%. As for full year, we're still expecting headline organic to be in that 7% to 9% range, so no change from our previous view. And just to be clear, these organic growth percentages exclude interest income. So moving back to our Risk Management segment. You just heard Scott say first quarter organic is shaping up around 13% due to excellent retention rolling of 2023 larger client wins and higher claim volumes. For full year, we're expecting organic in that 9% to 11% range. That does vary from first quarter, simply because we're lapping those '23 larger account wins. We post that. It's another terrific step-up after nearly 16% organic in '23. So now let me shift to a Brokerage segment adjusted EBITDAC margins. Recall during our January earnings call, we thought and say, an 8% full year organic growth environment. We could expand full year margins by 60 basis points. As we sit here today, that still seems about right. We also gave you a heads up that first quarter expansion would be adversely impacted around 90 basis points by the roll-in of M&A, both from tuck-in M&A that isn't as seasonal as we are and the last quarter of the roll-in of Buck that we've been discussing for over a year. So let me update that heads-up today. We think that the adverse impact of M&A roll-in will be around 95 basis points here in the first quarter, and we are also seeing about 15 basis points of headwind based on current FX rates. So when I pull that together, we see margins being backwards about 50 to 60 basis points in the first quarter. Then that flips to a positive 100 basis points in the second, third and fourth quarters, which then gets you back to that 60 basis points of expansion for full year '24. So really no new news when it comes to margin from what we've discussed in our January earnings call, but it's worth highlighting again so when we report results in a month or so, you're not surprised. As for Risk Management segment margins, you heard Scott say that we are expecting to deliver a margin of 20% for the first quarter and around that level for full year. Let me shift now to the CFO commentary document, starting on Page 3. This shows you the usual Brokerage and Risk Management segment modeling helpers. Relative to January, not a lot new here on this page other than maybe some more detailed margin comments that we -- that I just covered a second ago. So flip now to Page 4 in the Corporate segment outlook, 2 call-outs here: first, we updated our quarterly interest expense for our February debt offering; and second, we made a small tweak to acquisition costs in the quarter. Turning to Page 5. This page shows our tax credit carryforwards. The punchline remains the same: over the next few years, we will generate a nice cash flow sweetener as we utilize our tax credit balances. That was around $870 million at December 31, '23. And don't forget, that benefit will show up in our cash flow statement rather than our P&L. So let's move now to the top of Page 6. In January, we added this table to help you better model investment income. As a reminder, that financial statement line has a few components. First, it has premium finance revenues, which remember, have associated operating expenses and runs a margin similar to the overall Brokerage business. It has a small amount from a few equity investments in third-party brokers. It also has gains on divestitures, which we always adjust out. And last, it includes the interest income that we receive on client and free cash balances. That's the number most of you are really looking to model. We've expanded this table today, recognizing it's a little difficult to forecast this on a quarterly basis. It's not as simple as just looking at run rates or growth year-over-year. It can be significantly impacted by things like seasonality, changes in cash we hold on behalf of our clients, changes in our own free cash flow balances, the timing of M&A, timing of bonuses, timing of borrowings, et cetera, and of course, the rates we are expecting to earn on those balances. So clearly not an easy number to model. So we've added some forward-looking quarterly estimates that might help you do just that. Please make sure you read the footnotes to that table, too, where we discuss our assumption on interest rates. Moving down on Page 6 to M&A rollover revenues. You'll see that we're expecting $224 million of rollover revenue within our Brokerage segment in the first quarter and about $15 million within Risk Management. That shouldn't change much given we're just 10 days away from closing the quarter. So let me finish up with my typical comment on cash, debt and M&A. At the end of February, available cash on hand was over $900 million, reflecting our February debt rate. Our current cash position, combined with strong expected free cash flows for the rest of the year, positions us well for our pipeline of M&A opportunities. In total, we continue to estimate about $3.5 billion to fund potential M&A opportunities here in '24. So those are my prepared comments. Nearly a quarter into the year, we're in excellent shape. Our full year '24 organic and margin outlook is unchanged, and we remain just as bullish as we were a few weeks ago during our January earnings call. So I'm done with my comments. Operator, we're ready to move to Q&A.

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

My first question, I guess, goes back -- I'm trying to -- some of those is what you said on the Q4 and today. I guess you had -- on the Q4, I thought you had highlighted some of the timing with the benefits organic and also perhaps a little bit of a shortfall, I thought maybe in Canada, just some business that you expected. And I thought maybe that could have come in the Q1 as well. So can you help me tie, I guess, what you saw in the Q1 relative to what kind of move from the fourth quarter? And then what, I guess, we could expect over the coming over the balance of the year?

All right. So let me take Canada. I would say Canada, there's nothing changed from our fourth quarter. I mean they are seeing some rate differences there, but that operation continues to grow in the low single digits. When it comes to the life business, yes, that's lumpy. We have that every quarter. Interestingly, there's the new AFR rate that is being announced, that actually could make more demand for these products return. So as that rate changes, we think we could have some nice opportunities there. We haven't assumed much of that for what we're getting in the first quarter. That AFR rate is just now being announced. We could have some pickup here in the last 10 days of March, but that could slip in April. But our comments are not assuming a ton of that business in the first quarter.

Okay. And then, Doug, you said you think meaningful casualty rate increases are around the corner. Can you expand on that, I guess, what you mean by around the quarter, how soon we might see that? And then just the magnitude of some of the rate increases you're thinking in the word meaningful?

Sure. I think meaningful could be pushing 10%.

And then you would think that, that would start, I guess, pretty immediately?

No, casualty takes a little longer. I think that it takes longer for those historical reserves to develop. We're just hearing -- we're hearing constant chatter from the carriers that they're concerned about casualty rates. And you heard it in some of our earlier comments from the business unit leaders. So are we talking about 20%, 30%? No. We're talking about a measured, rational step-up in rate, perhaps over a longer term than just a knee-jerk reaction in one period. But you could see these in upper single digits, pushing 10% somewhere, maybe over the next year or 2, something like that. And then we'll see where things sit. It's not like property where you're pretty -- you get a pretty good idea if you got wallop the year before.

And then one last one on the investment income guide. So you gave some guidance today that is implying like a little bit an uplift '24 versus '23. Is that uplift in fiduciary investment income expected to fall to your margin? And is that factored into your full year margin guide?

Our margin guide includes what we're -- what you're seeing on Page 6. So let me work backwards from that. Does that answer your question?

Yes. So it assumes like 30 basis points from a fiduciary investment income in '24?

Well, I'd have to do the math from Page 6, I'd have -- to be honest, I'd look at that in a second. Maybe 20 basis points, something like that.

Our next questions come from the line of David Motemaden with Evercore ISI.

I just had a question, and I think this was mentioned earlier as well, just on the life insurance business. I think there was $5 million that came back, but there were also a few other elements that hit the fourth quarter. I think the entertainment practice saw some slowdown. So I'm wondering if you're seeing those starting come back here in 2024 and how much of that is reflected in the first quarter organic growth?

So I said earlier that the life business, we haven't -- we're not assuming a big comeback in the life business here in the first quarter. Maybe, Mike, do you want to talk about anything you're seeing in other areas, the entertainment practice, other business?

Yes. I mean the entertainment practice for us is an important business, and it did rebound considerably because of the strike ending in the fourth quarter. So we are seeing, obviously, more content being put out, more projects being worked on. So we are seeing a lift in that. But just to level set, overall, that business, while it's significant and important to us, isn't going to drastically change our results. But it will be a positive, certainly for -- specifically for the Southwest, where most of that business is placed. And we do ensure a significant share of that business and have a great market share overall.

Got it. That's helpful. And then just my follow-up on the margin expansion. So totally understand the 50 to 60 basis point outlook for the first quarter. And then, I guess, I'm just wondering on the roughly 100 basis points in the remaining quarters. That's above the 50 to 60 basis points of underlying margin expansion you called out. Is that -- could you just talk about the drivers of what's driving the upside to bridge that between 50 to 60 to the 100 over the 2Q through 4Q?

Right. Some great questions. So let's just make sure that we reiterate, we've got the headwind in the first quarter and then we see some nice tick up in the second, third and fourth as we roll past the rolling impact of Buck and other M&A. When we look at the full year, 60 basis points on 8% interest, and that's just 8% organic, we see that -- I'm just picking that number as a hypothetical, but Buck would have a full year impact of 10% or 15% on that 60 basis points. The other thing is rolling of M&A that may not have -- other M&A that might not have margins higher -- might cost us 25 basis points. So how do I feel about an 8% hypothetical organic environment? That's really kind of delivering somewhere in that 75 to 90 points of margin expansion. That's a darn good outlook for an organic year that's in that hypothetical 8% range. So if you start with that position first, let's look at the full year. Why on a quarterly basis, there's a couple of things that happened in the first quarter. First of all, we give a lot of our raises away in the second half of the year. So that's hitting our first quarter of this year, probably a little bit more than it has in the past. So that probably cost us about 30 basis points. So when you get to that 50 to 60 underlying, maybe with the raises coming in, you get more up towards that 90 basis points. And this is pretty close to the 100 basis points in the next 3 quarters. Does that help you kind of bridge your thought on that?

Yes. No, that makes sense. Understood.

Our next questions come from the line of Mike Zaremski with BMO Capital Markets.

Thanks for always doing this Investor Day. It's helpful. On the -- going back to some of the commentary on casualty, especially the comments about pricing could get up towards 10% or so potentially. Is there a way or are you seeing anything to bifurcate between the kind of large employer marketplace given Gallagher has an increasing market share there versus kind of the small, medium-sized part of the marketplace? Because some of the pricing gauges on the large account marketplace that one of your competitors puts out and some of the carriers that operate there have been showing rate increases that have been lower than the small account, medium account marketplace?

Yes. This is Joel Cavaness. So I guess it depends on what your definition of small is, of course, but I think it's generally fairly category. Now of course, there are times that someone might not see it, and there are times when someone would see significantly more. But I think what you're seeing between the losses that are occurring in the court systems, of course, social inflation, and of course, the different funding litigation. It's a concern. People are reacting through lower limits deployed and categoric price increases. You're seeing a lot of nervousness in the insurance carrier marketplace about what's going on with current reserves.

Yes. Mike, this is Mike Pesch. I would just say when you -- in our comments, we talk about difficult risks maybe still having a big challenge and maybe risks that are more benign having a more stable environment. I think that is very true throughout both small, middle and large accounts. When you look at large accounts, they tend to buy higher limits. And if it's a large account that also has a risky part of their business that we're trying to build a tower for, you're not seeing a ton of capacity flow into that, and you are seeing rate increase in those layers because of the riskiness of the underlying account. So again, I would say it's a rational market, but that's sort of the first step towards overall increase. When you start seeing the risky accounts get those increases, that does tend to bleed over into some of the more benign businesses based on what Joel just said relative to social inflation and some of the other perils that underwriters are considering.

Got it. That's helpful color. Maybe my follow-up is on the wholesale commentary. And it was good to hear that you guys are utilizing Gallagher Re more so now. But I'm just curious, there's been on and off chatter about property maybe eventually are coming out of the wholesale marketplace, maybe just dependent on weather. But it also sounds like there could be more inflows on the casualty side given what you guys just talked about. Is that decent characterization of how to maybe think about some of the major puts and takes as the year progresses in terms of the wholesale kind of growth environment?

Yes. So one of the indicators that we look at every single week, 7 days over 7 days, 7 days over 7 days of last year, blah, blah, blah, our submission activity is up significantly. So we're not -- and our renewal retention is actually very good. So I think kind of if you look at the need or the demand, the demand continues to be up. So we're not seeing a retrenchment or anybody moving back to the admitted market. The submission activity is very, very strong.

And lastly, sticking to wholesale, too, as clients might -- I think you might have said that you're moving some of the SmartMarket expertise into wholesale and then you're launching some programs. Is it fair to characterize those initiatives as being a slightly higher margin than traditional wholesale?

Yes. I think when you look at it, like we evidenced with the 2 newest programs from an overall perspective, when you're putting the program together and you're using Gallagher Re and place the reinsurance very effectively and then you're using Gallagher Bassett to handle the claims that you kind of come to your own conclusion that that's -- those are very nice wins for us over the entire company.

[Operator Instructions] Our next questions come from the line of Mark Hughes with Truist Securities.

I think It was mentioned that the D&O may be bottoming. I wonder whether you're starting to see a little more deal activity and maybe M&A could be picking up and that could lead to more demand for D&O or other related coverages. How are you seeing that?

Yes. Mark, this is Mike Pesch. My comments were we were still seeing slight declines. But the more we meet with some of our key trading partners in the financial lines and D&O marketplace, we're hearing that, that may be coming to an end, that they've reached the bottom of their trough in terms of what they feel comfortable with relative to the risk that they're underwriting. To your second point, are we seeing more M&A activity or things of that nature where we would have one-timers, reps and warranties? But not quite yet, but I would tell you that there's a lot of money out there, and there's a lot of businesses, especially in the private equity space, that we do anticipate there being a bit more movement on, which we would benefit from in those onetime placements. But it's probably more towards the middle of this year as we start to look out both on the rate standpoint and on the activity standpoint.

Yes, Mark. Our data you saw from that maybe a year ago right now that if that was the bottom last year, our overnights are showing us that we -- let's say it was down 10% last year overall. And this year, we're seeing it down 6%, something like that. So yes, it does look like it's at the bottom.

Okay. And then on the reinsurance pricing, I appreciate that you don't have any concrete predictions for June 1. But I wonder if you could give us a concrete prediction. It feels like the trend has been a little more downwards. Is there a reason to think that that's mistaken to think you could see price declines come June 1?

Mark, it's Tom. We really have no comments at this point in time as we go forward. At this point, the market is behaving very rationally. There is no significant capacity coming into it. But we just -- we're just holding it and getting through 4/1 to start with.

There's a nice demand uptick too in that, though, too. So it's process. It's both the pricing, which seems to be rational, and the demand is increasing. For us, it's both.

Understood. And then anything on the workers' comp side? And looking at some of these industry aggregate, loss development numbers, it feels like -- it looks like there's a little bit of an uptick in cash payout trend. You don't really hear that from many carriers, but maybe sometimes you do. Given your exposure to that in your carrier conversations and then from the Gallagher Bassett side, I wonder whether you are observing any kind of early concern about what could emerge in workers' comp?

Yes. Mark, this is Mike Pesch. I'm going to flip it over to Scott. In my comments, I said workers' compensation is up 2%. But again, remember, that includes exposure. So we are still getting a lift from payroll being up. Your comment is interesting because most every carrier is talking about workers' compensation and the cost -- the underlying cost eventually catching up with the rating environment. Again, we haven't quite seen it. I would still call it flattish from a rate perspective. And then, of course, the lift from exposure. But they're all talking about it. And so that tells me that there's probably going to be a shift at some point in time. Whether it happens in the next 3 months, 6 months, 9 months, a little too soon to tell, but I would tell you it's on our minds.

Mark, this is Scott. We're seeing strong increases around just claim activity, more on the frequency side within our existing clients. I wouldn't say we're hearing any major concerns. There is a little bit of the payouts, as you're referring to, as we've been saying here over the last handful of quarters a year. There's upward pressure with inflation a little bit. But nothing -- I wouldn't say it's anything different than it has been over the last couple of quarters. Nothing new.

Underlying our earlier comments, Mark, this is Pat, we are seeing medical inflation. So Bill talked about that, and we're seeing that demand in our benefits business. And work comp, of course, a big component of that is medical.

Yes, it takes a while -- wage increases are also starting to flow through the system, too. So as the payouts are based on wages and wages are inflating, it would say that there's going to be a need for more rate, too.

Our next questions come from the line of Rob Cox with Goldman Sachs.

Maybe my first question on RPS. I think the comments were for 10% RPC in the quarter in open brokerage and 8% RPC in programs and binding. But I think the total organic growth was 12% to 14%. So if that's right, I think that's stronger organic than you had in 2023, and it's also a much wider gap between organic and RPC. So just curious what's driving that?

Writing a lot of new business. It -- yes, in answer to your question, yes, it was better than 2023. It's first 2 months. But we're seeing, as I said in my earlier comments, seeing strong submission flow. Strong submission flow, obviously, equates back to additional revenues, more wins. And I just think overall, the business is very healthy. And so we'll -- we continue, our outlook is pretty good.

I'd hit that earlier question on, are we seeing flow back to the primary carriers, not yet.

Got it. That's helpful. And maybe just another question. High net worth was mentioned in your prepared remarks in retail, and you also seem to touch on personal lines, E&S maybe more than you guys have previously. I was wondering if you could help size either of those businesses for Gallagher and maybe comment on the trends you're seeing, particularly in regards to growth in the homeowners business and any of that homeowners business moving to the E&S market.

Yes. Rob, this is Mike Pesch. I'll talk first about the high-net-worth practice. So you saw that we announced an acquisition in the fourth quarter of Ericson, which is a really prominent high-net-worth broker in the Northeast, and we're really excited to have them on the team that complements the strategy that we've been embarking on for the last probably 3 to 4 years, which is to find best in class because we do think that, that is an important business, not only for the sake of just cross-selling with many of our medium to large commercial accounts and the C-suite within there that may fit that appetite but also to have the value props associated with it. So to give you some scale, it's between a $90 million to $100 million business for us but growing rapidly. The second part of that challenge is, of course -- and I'll flip it over to Joel, is finding capacity. So a lot of those clientele have very big houses and other assets that are becoming more and more challenging because they're in places where the wind blows or the earth shakes. And so it is a big challenge for us that we're currently working hand in glove with RPS to create some solutions for as we continue to build out that practice.

Yes. So Rob, we've seen a significant inflow of requests for E&S coverage for homeowners, both traditional homeowners as well as high net worth. High net worth, as Mike indicated, is a challenge because they're typically in places where the wind does blow. It's -- we do have weather-related, but it really goes beyond that. The convective storm issues that we've had over the last few years in areas like Texas and other spots have given -- you've seen some of the high writers of homeowners' business, and the losses are just very difficult. And then you put on top of that the difficulty with getting rate or changing forms in the admitted market, and that's caused a significant inflow into the E&S business. Obviously, California is an issue, Louisiana, Florida, big issues. It's really creeped into the concentration that you have in the Northeast. So you've seen a big uptick of submission and interest and need for the E&S markets to step in for homeowners.

Yes. Rob, one data point that -- our personal lines business was up 4.3% in fourth quarter '21, 7% in fourth quarter '22, 13% in fourth quarter '23. So we're seeing that increase. And again, that's both -- that's premium change. So there is some exposure unit of change in there. But you can see the trend line on that.

Yes. That's great color. And maybe just one last one. You guys touched on it a little bit in the prepared remarks, and you guys have obviously had an Australia business for quite a while. Just curious what makes Australia an attractive market and how you would compare it to the U.S. It seems like it might be pretty similar, but any comments there?

I'll take that. Rob, this is Tom. Australia is a place we've been in now for a decade. And during that period of time, we've had the opportunity to take our business, create a Gallagher enterprise down there, drive organic growth, bring our products out there, do M&A. They do model themselves between the U.K. and the U.S. pretty effectively. Insurance, there's a purchase, is pretty routine in terms of GDP. It's very similar to the U.S. and the U.K. So it's a great market for us. There are still hundreds and hundreds of independent agents around the country that we have gotten to know over the last decade with an opportunity to look at select acquisitions as we've done virtually every year. The business runs a margin that is far superior to what it was when we acquired it. And we're incredibly excited about the leadership team and the direction of travel.

Our next questions come from the line of Meyer Shields with KBW.

A couple of mechanical questions. I guess, Doug, if I can start with the slide on premium financing. What explains the seasonality of the, I guess, revenues on that line?

A lot of that line is coming from Australia and New Zealand businesses that will have renewal dates. And there's many more annual pay in Australia and New Zealand. So you'll see there that will be skewed towards the June renewals, where we'll have higher premium finance receivable balances. Remember, their year down there is a June 30 year-end. So you will see quarterly fluctuations based on that Australia, New Zealand business there. And then we do have some equity interest in earnings of subsidiaries that are skewed a little bit to the fourth quarter. So those 2 pieces will explain that dynamic.

Okay. Fantastic. Early on, there was a commentary describing the strong analytics that Gallagher has developed. How do you ensure that you get paid for that when you're collecting commissions rather than fees?

So let me -- Meyer, this is Mike Pesch...

Let me interrupt, Mike. We write a full load of new business, Meyer. We go to -- 90% of the time we compete with somebody substantially smaller than us. People look and go, oh, gosh, you compete with Marsh and Aon all the time. And we do compete with them. 90-plus percent, they don't have the capability. We walk in, we show them drive, like you buy this. This is the kind of losses we see in these layers in your type of business. Now let's go to the Jones Agency down the street to see what they had to say. Well, they've got a good deal for you because they quoted the thing with Hartford and you used to be with travelers. That's their data. So we kick a**.

Meyer, and totally agree with Pat's comments. We'll review question more so around whether or not we are charging our customers for the access to that data? Is that what I heard -- what I thought I heard you may have said?

Yes. I never had questions on the new business generation.

Yes. So the information within Drive is there for our producers to exactly what Pat described. So when they're out winning new business or communicating with an existing customer, they use that data to both better understand the marketplace but also to help that client predict what risk and how much risk they should [indiscernible]. And so there is not -- we don't charge our customers for access to that kind of information. It helps fuel our new business. It helps fuel our retention, and that's exactly how we utilize it. We're also rolling out many other digital tools. I mentioned Gallagher Submit in my commentary. We don't charge for Gallagher Submit. There's an efficiency created, again, benefit. If they're competing with the Jones Agency who doesn't have a digital platform, that's a big opportunity for us. And we've just launched a thing called Gallagher Go, which is a digital interaction for every client to be able to actually tap into all of the things that we are providing for them. Their policies and premiums or do all of that sort of stuff similar to a banking environment that you may have with your local bank. And that digital interaction, we've proven now increases our retention and increases our [ win rate ] clients.

Okay. Perfect. And if I can throw one last question real quick. And this is, I guess -- Allstate came out with low capacity numbers for February. How should we think about contingent commissions and their sensitivity to either better or worth weather, better or worse reserve development?

Meyer, you were very choppy on that. Can you just repeat your question, there's some background noise.

Yes. Sorry, am I coming through okay?

Yes. Now you are, yes. Thanks.

Yes. I just want to get a better understanding of the sensitivity of contingent commissions to either better or worse weather or better or worse reserve development in the underwriting industry.

Listen, I think the contingents and supplementals are a reflection of the underlying book of business is our direct sensitivity. I don't think we have that many contingent programs that are maybe I suppose more to fire than to wind. I don't think we have a lot of contingents there based on wind on that. So you could have some fire contingent. You could have maybe some convective storms, but it's not as sensitive as you might think to what I call parable risk.

Our last question will come from the line of Cave Montazeri with Deutsche Bank.

My question is on property cat reinsurance terms and conditions. Reinsurance raised attachment points last year, is that why less exposure to a traditional losses. Attachment points seem to have remained high this year as well. Do you think there's a structural change in the type of risk that reinsurers are willing to take? Or do you think attachment points are likely to come back down next year?

It's too -- this is Tom. It's too early to tell, but I'll tell you what the markets be behaving very rationally. The carriers have been on the short end of the stick for a long time, and they're looking to recoup some of the losses that they've had.

Makes sense. And my second question is also on prop cat reinsurance. There's plenty of reinsurance capital available at higher attachment points, but a lot of demand seems to be at lower attachment points. I'm just curious how you guys as a reinsurance broker were able to help your clients to get coverage at lower attachment points?

Great question. We deal with that every single day. It's our job to try and help our carriers work through this process because the retentions are not coming down yet.

Okay. I think that's it. So let me just give you a few comments here as we close up. From my vantage point as CEO, I believe we're executing extremely well on our strategic priorities. We have the most talented team in the industry, access to products and solutions, fantastic client service and great carrier relationships. I believe we have all the ingredients regardless of market environment to continue our excellent financial performance. We look forward to speaking with you again during our first quarter earnings call at the end of April. Thanks for being with us this morning. We appreciate your time and your questions. And we'll see you in April.

Thank you. This does conclude today's conference call. You may disconnect your lines at this time. Enjoy the rest of your day.