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

Good afternoon, and welcome to Arthur J. Gallagher & Co.'s Second Quarter 2024 Earnings Conference Call. [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 conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. The company does not assume any obligation to update information or forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the information concerning forward-looking statements in the Risk Factors sections contained in the company's most recent 10-K, 10-Q and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of the non-GAAP measures discussed on this call as well as other information regarding these measures, please refer to the earnings 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 of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.

Thank you very much. Good afternoon, and thank you for joining us for our second quarter '24 earnings call. On the call with me today is Doug Howell, our CFO, other members of the management team and the heads of our operating business divisions. We had an excellent second quarter. For our combined Brokerage and Risk Management segments, we posted 14% growth in revenue, 7.7% organic growth and 8.1% if you include interest income. We also completed 12 new mergers, totaling $72 million of estimated annualized revenue; reported net earnings margin expansion of 35 basis points; adjusted EBITDAC margin expansion of 102 basis points to 31.4%; GAAP earnings per share of $1.70, up 15% year-over-year; and adjusted earnings per share of $2.68, up 19% year-over-year. Another great quarter by the team and right in line with the expectations we provided at our June IR Day. Moving to results on a segment basis, starting with the Brokerage segment. Reported revenue growth was 14%. Organic growth was 7.7% at the midpoint of guidance and above 8% if you include interest income. Adjusted EBITDAC margin expansion was 98 basis points, at the upper end of our June IR Day expectations. Let me give you some insights behind our Brokerage segment organic. And just to level set, the following figures do not include interest income. Within our P/C retail operations, we delivered 6% in the U.S. and Canada, 7% in the U.K., Australia and New Zealand. Our global employee benefit brokerage and consulting business posted organic of about 3%. That would have been 5% without the timing impact from some lumpy life case sales. Shifting to our reinsurance, wholesale and specialty businesses, overall organic of 12%. This includes Gallagher Re at 13%, U.K. specialty at 10% and U.S. wholesale at 11%. Excellent growth, whether retail, wholesale or reinsurance. Next, let me provide some thoughts on the P/C insurance pricing environment, starting with the primary insurance marketplace. Global second quarter renewal premiums, which include both rate and exposure changes, were up about 5%. So no change from what we discussed 4 weeks ago at our June investor meeting. Renewal premium increases continue to be broad-based, up across all of our major geographies and most product lines. For example, property was up 2% to 4%; general liability, up 5% to 7%; umbrella and commercial auto, up 8% to 10%; workers' comp, up 1% to 3%; D&O, down about 5%; cyber was flat; and personal lines, up over 10%. So many lines are still seeing strong increases. Moving to the reinsurance market and midyear renewals. Property reinsurance renewals saw modest price declines concentrated at the top end of reinsurance towers due to the increased capacity from both traditional reinsurers and the ILS market. Offsetting this was underlying exposure growth, combined with increased demand, resulting in flat year-over-year premium for reinsurers overall. U.S. casualty renewals saw terms and conditions tighten and some modest price increases. Reinsurers continue to heavily scrutinize submissions, given the industry's unfavorable prior year reserve development and reinsurers' view of the current loss cost trends. In our view, insurance and reinsurance carriers continue to behave rationally, raising rates the most where it is needed to generate an adequate underwriting profit by line, by industry and by geography. We continue to see this differentiation in our data between property and casualty lines. Carriers believe property may be close to approaching price and exposure adequacy. And thus, we are seeing property renewal premium increases moderating, but mostly within large accounts. Underlying that, accounts with premiums around $1 million or greater are seeing renewal premiums flattish year-over-year. Yet on the other hand, in the small and midsized client space, where we are an industry leader, we are seeing increases of 7% for the second quarter. Shifting to casualty classes, we are seeing the greatest renewal premium increases and signs of these increases advancing. In fact, global second quarter umbrella and commercial auto renewal premium increases are in the high single digits, and there is little differentiation by client size. We have been highlighting worsening social inflation, medical expenses and growing historical reserve concerns for quite some time. And thus, we continue to believe further rate increases are to come in casualty. While renewal premium increases are the rational carrier response in the current environment, our clients have experienced multiple years of increased costs. Having a trusted adviser like Gallagher can help businesses navigate a complex insurance market by finding the best coverage for our clients while mitigating price increases, and that's our job as brokers. Moving to comments on our customers' business activity. During the second quarter, our daily indications continue to show positive midyear policy endorsements, audits and cancellations, similar with last year's levels across most geographies. So activity remains solid, and we are not seeing signs of global economic slowdown. Within the U.S., the labor market imbalance remains intact with more open jobs than unemployed people looking for work. And with continued wage growth and further medical cost inflation, employers remain focused on attracting and retaining talent while controlling costs. So I see solid demand for our services and advice in '24 and in 2025. Across the Brokerage operations, I believe we continue to win market share due to our superior client value proposition, niche expertise, outstanding service, and our extensive data and analytics offerings. Frankly, the smaller local brokers that we are competing against about 90% of the time just can't match the value we provide, and that is leading to more net brokerage wins for Gallagher. So when we pull all this together, we continue to see full year '24 Brokerage organic in the 7% to 9% range, and that would be another outstanding year. Moving on to our Risk Management segment, Gallagher Bassett. Revenue growth was 13%, including organic of 7.7%. Adjusted EBITDAC margins were 20.6%, up 120 basis points versus last year, and in line with our June IR Day expectations. We continue to benefit from new business wins, outstanding retention, increases in customer business activity, and higher new or rising claims. Looking forward, we see organic in the next 2 quarters around 7% and margins around 20.5%. That would bring full year '24 organic to 9% and margins to approximately 20.5%, and that too would be an outstanding year. Let me shift to mergers and acquisitions. We completed 12 new mergers during the second quarter, representing about $72 million of estimated annualized revenue. I'd like to thank all of our new partners for joining us and extend a very warm welcome to our growing Gallagher family of professionals. Looking ahead, our pipeline remains very strong. We have around 60 term sheets being signed and prepared, representing around $550 million of annualized revenue. Good firms always have a choice, and we will be very excited if they choose to join Gallagher. Let me conclude with some comments regarding our bedrock culture. Last month, we reflected on the 40th anniversary of becoming a public company. [ Michael ] Bob Gallagher, Chairman and CEO at the time, knew above all, we must maintain our unique culture of teamwork, integrity and client service. Those values are captured in the 25 tenets with The Gallagher Way. Thanks to all of our global colleagues that live and breathe The Gallagher Way day in and day out, our culture is stronger and more vibrant than ever. And it's our culture that continues to differentiate us as a firm and help to drive an average annual total shareholder return of more than 16% over the past 40 years. That is The Gallagher Way. Okay. I'll stop now and turn it over to Doug. Doug?

Thanks, Pat, and hello, everyone. Today, I'll start with our earnings release. I'll comment on second quarter organic growth and margins by segment. Punchline is we came in right in line with our June IR Day commentary. I'll also update you on how we are seeing organic growth and margin shape up for the second half of the year. Then I'll shift to the CFO commentary document that we posted on our IR website, and I'll walk through the typical modeling helpers that we provide. And I'll conclude my prepared remarks with a few comments on cash, M&A and capital management. Okay. Let's flip to Page 3 of the earnings release. Headline Brokerage segment second quarter organic growth of 7.7%. Again, that's right in line with our June IR day, where we forecasted a range of 7.5% to 8%. Notably, we would have been above 8% if a few large life sales had not shifted from second quarter to later in the year. We signaled this possible timing at our June IR Day. So again, no new news here. Recall that we also foreshadowed in late June a small headwind from contingents that adversely impacted all inorganic by about 25 basis points. And finally, just a reminder, that we don't include interest income in organic. If we did, that would have pushed organic higher by about 40 basis points. We believe the investments that we have made in people, sales tools, niche experts, and data and analytics are leading to strong new business production and favorable client retention across the globe. Additionally, the insurance market backdrop remains supportive of growth. Pat said renewal premium change was 5% in the quarter. However, our July's renewal premium change thus far is above second quarter. And with an active hurricane season predicted and noise around U.S. casualty reserves growing louder again this quarter, it's not unreasonable to expect mid-single-digit or greater renewal premium changes in the second half of '24. So our organic investments, combined with the insurance market conditions, continues to support our 2024 full year Brokerage segment organic outlook. We are still seeing it in that 7% to 9% range. So now flip to Page 5 of the earnings release to the Brokerage segment adjusted EBITDAC table. Second quarter adjusted EBITDAC margin was 33.1%, up 98 basis points over last year and at the upper end of our June IR Day expectations. Let me walk you through a bridge from last year. First, if you pull out last year 2023 second quarter, you'd see we reported back then adjusted EBITDAC margin of 32.1%. Second, you need to adjust for current period FX rates, which had a very limited impact on margin this quarter. So 2023 adjusted FX margin was also 32.1%. Third, organic and interest gave us nearly 110 basis points of margin expansion this quarter, and then the impact of M&A and divestitures used about 10 basis points of margin. That gets you to second quarter 2024 margins of 33.1% and, therefore, that nearly 100 basis points of brokerage margin expansion. That's really, really great work by the team. As we look ahead to the second half of '24, we are still expecting margin expansion in the 90 to 100 basis points range. So third and fourth quarter will look a lot like second quarter. Recall, first quarter '24 still had the roll-in impact of the Buck acquisition, so the math for full year '24 will show about 60 basis points of full year expansion. But that would be about 80 basis points full year without Buck, which feels about right, assuming we post organic in the 7% to 9% range. Let's move now to the Risk Management segment and the organic and EBITDAC tables on Pages 5 and 6 of the earnings release. Another excellent quarter. We saw solid new business, fantastic retention and growing claim count. We posted organic of 7.7% and margins at 20.6%, both were right in line with our June IR Day outlook. Looking forward, as Pat said, we see organic in each of the next 2 quarters around 7% and margins around 20.5%. If we were to post that, we would finish the year with organic of 9% and margins of approximately 20.5%. That also would be great work by the team. Turning to Page 6 of the earnings release in the Corporate segment shortcut table. Adjusted second quarter numbers came in just better than the favorable end of our June IR Day expectations. All of that was due to some favorable tax items within the Corporate expense line. All right. Now let's move to the CFO commentary document, starting on Page 3, a few comments. First, foreign exchange. The dollar has weakened over the past month, so please make sure you incorporate these updated revenue and EPS impacts from FX in your models for the Brokerage and Risk Management segment. Second, Brokerage segment amortization expense. Recall, while this impacts reported GAAP results, we adjust it out so it doesn't impact adjusted non-GAAP earnings. This line can also be a bit noisy from time to time. Late this quarter, we received updated third-party M&A valuation estimates on a third -- or excuse me, on a few recent acquisitions and also made some balance sheet adjustments at the end of the quarter. You'll see that in Footnote 2 at the bottom of the page. Looking forward, we expect amortization expense of about $155 million per quarter. Again, all of that is adjusted out, but it does cause some noise in the reported GAAP results. Next, the Risk Management's amortization and depreciation line. Here too, we received updated M&A valuation estimates for our recent acquisition, which is also described in Footnote 5. The net impact to non-GAAP results is about $0.01 to EPS this quarter. Going forward, we're now expecting a lower level of depreciation and amortization as a result of that M&A valuation report. Turning to the Corporate segment on Page 4, no change to our outlook for the third and fourth quarter. Flipping to Page 5 to our tax credit carryforwards. It shows about $800 million at June 30. While this benefit won't show up in the P&L, it does benefit our cash flow by about $150 million to $180 million a year, which helps us fund future M&A. Turning now to Page 6, the investment income table. We call this modeling help or breaks down the components of investment income, premium finance revenues, book gains and equity investments in third-party brokers. And as a reminder, none of these items are included in our organic growth computations that we present on Pages 3 and 5 of our earnings release. The punchline here is not much has changed from what we provided at our June IR Day. We are still embedding 2 25-basis-point rate cuts in the second half of '24, and we have updated our estimates in this table for current FX rates. When you shift down on that page to the rollover revenue table, second quarter '24 column, the subtotal shows $128 million and $142 million before divestitures. The $142 million was better than our IR Day outlook due to a few acquisitions performing very well during June. Looking forward, the pinkish columns to the right include estimated revenues for M&A closed through yesterday. So just a reminder, you'll need to make a pick for future M&A. Moving down on that page, you'll see Risk Management segment rollover revenues have been updated for our early third quarter acquisition. For the next 2 quarters, we expect approximately $20 million and $15 million, respectively. Please make sure to reflect these additional revenues in your models. Moving now to cash, capital management and M&A funding. Available cash on hand at June 30 was approaching $700 million. When combined with our expected free cash flow in the second half of '24, which is typically stronger than first half, we are well positioned for our pipeline of M&A opportunities. In total, we continue to estimate we could have $3.5 billion to fund M&A opportunities during '24 and another $4 billion in '25, all while maintaining a solid investment-grade debt rating. And remember, if we don't spend it all, it opens the door for share repurchases as well. Okay. Another excellent quarter and fantastic first half of the year. Looking ahead, we see continued strong organic growth due to net new business wins, a large and growing M&A pipeline, and many opportunities for productivity improvements. Add that to a winning culture, and I too believe we are very well positioned to deliver another terrific year here in '24. Thanks to all the hard work by the team, and back to you, Pat.

Thanks, Doug. Operator, do you want to open it up for questions, please?

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

My first question is on the wholesale organic growth. You guys said it came in at 11% in the quarter. I believe the IR Day guide was 7% to 9%, and I think that reflected the slowdown you expected in open brokerage, I think, on the property side. So what changed relative to that guidance and how the results came in, in the quarter?

Listen, we had a terrific finish to the end of June. Submissions were up 31% during June. There is a -- clearly a continued use of wholesalers. We're not seeing really any significant shift back to the primary market. And the submissions were up and so our guidance is up.

Okay. And then you -- at your IR Day, you also had said, when we think about next year, that it feels a lot like 2024. I think the assumption, right, is perhaps something still within the range of 7% to 9% organic in brokerage. Assuming -- I'm assuming that still remains the case, if you could confirm that. It's obviously been a few weeks. And then if that's the case next year, if this year's margin expansion was 80 basis points without the Buck and M&A noise, would that be the rule of thumb in terms of margin expansion for next year if you're in the 7% to 9% organic growth range?

Well, yes, let's reaffirm that we see next year -- it could be very similar to this year. Let's see what happens with hurricane season, casualty rates, interest rates, the election. So there's some unknowns that are happening, but we still think that next year feels a lot like where this year will come in. When it comes to margin expansion, let us work on that a little bit during our budget season. We'll start that before our September IR Day. We should have a good idea in October. But there's nothing systemic out there that would cause us to believe that in a 7% to 9% organic environment, you could see margins up in that 75 to 100 basis point range.

Okay. And then my last one. You guys said -- you said, you have $3.5 billion to fund M&A this year. How much did you spend in the first half of the year? And given the pipeline that you guys see, does it feel like there might be some buyback this year? Or is it still kind of TBD?

So I think we've spent around $700 million thus far this year. We have some commitments out there. Do I see us having some buybacks? Maybe. We do have the large earn-out payable that's due right after the first of the year also. That's generally -- we don't include that in that number. We kind of anticipate that, but that -- we'll see. I just got off the phone an hour ago with one of our M&A bird dogs here in the U.S., and he's really starting to feel upward pressure on opportunities for M&A. There are some that are sitting there thinking that we'll see what happens with the November election. If it goes Republican, there's a lot of proposals to drop the capital gains rate maybe down to 15%. So you might have people that try to push that into January. If the Democrats win, then there might be a push to get things sold before the end of the year. So we're sitting very similar to where we were before an election 3.5 years ago and where we were 7.5 years ago. There is a lot of uncertainty on M&A flow that revolves around the presidential election. So I think we've got a great shot of using it all. And if not, we'll take a look at what happens on share repurchases.

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

I hope this question makes sense. But on the P&C pricing environment, you always give good commentary on the renewal premium changes and you kind of give it overall and by product line. And so the RPC, right, has decelerated more recently to around 5%. How is that interchanging with your organic growth? Why is there a bigger delta now between your organic and RPC versus what we saw early this year and last year?

All right. So a great thing, and maybe we haven't talked about it directly for quite a few quarters, but you always have to think about the opt-in, opt-out of the buyers' behavior. When prices are going up, buyers opt out of coverages, which might mean they increase the deductible, lower a limit or just don't buy certain coverages. As prices start to moderate or slower amounts of increases, they tend to opt back in. They reduce their deductibles, they raise their limits, and maybe they buy coverages when they said, we just couldn't afford before. So if you go all the way back into our investor materials, there is always a delta between rate and exposure and what our organic growth is. And so that's why in periods when you see property is up 12%, we're not growing our property lines by 12%. They're growing 7%, 8%, 9%. That's actually our revenue. So you always have to remember the opt-in, opt-out impact. Then the other thing too is you got the dynamic of large accounts versus mid-market and small accounts that can influence that. So we're giving you a feel of what's going on in the market, but the behavior of our actual customers can vary depending on -- by rational buying behavior. Prices go down, I buy more. Prices go up, I buy less.

As Doug said, let me hit on that as well, Mike. Let's not forget what our job is. So Doug hit right on it. When rate and exposure looks like it's up 12% and you say, well, how come you're not seeing that right in your renewal book? Our job is to mitigate that. And we start right with that promise. Like wait a minute, here's where we see the market going. A good broker gets out in front of this with their clients months. Here's what we see in the market, here's what's coming, what are we going to do about it? Let's take retentions up. Remember, you dropped the cover before. Now it's time to add it. So there's a lot of moving parts between those 2 numbers.

Got it. And obviously, it's great you guys disclose it. And so I guess, I just want to put a final point on it. So is it fair to say that you're doing a good job for your clients? And on a year-over-year basis, it's putting a little bit of, I guess, pressure on your organic year-over-year? And separately but related, [indiscernible] there. Do clients have the same amount of flexibility as they do in other lines that would cause the RPC disconnect to continue?

Yes, definitely. Absolutely. Number one, yes, if you throw me the softball, are we doing a good job for our clients, the answer is going to be best in the business. And we think these numbers show that. And we think the growth numbers show it. Absolutely. And yes, you'll continue to see always some change between what's being reported as growth in units of exposure and premium rates based on what we do. And the tools in our toolbox are unbelievable. So do you want to look at a captive? Would you like to take your retention up? It's not just, do you buy insurance or don't. Let's start with the things that maybe are the last things you should insure and the first things you'll self-insure. There's a lot of that work going on with our people every single day. By the way, that appetite for risk is very individual. It's not prescriptive. You can't take a book. There's no AI that says, oh, an auto dealer has this much appetite for risk based on the number of cars in the lot. It's not how it works. So that's where our profession comes in when dealing with those people, and then our advice is critical. It's not just, well, I'm pretty bold here. I think a $1 million retention makes a lot of sense. Wait, wait, wait. We think it looks better this way. And that's what we get paid to do.

Okay. That's helpful. And just lastly, pivoting to reinsurance. To the extent you have a view, one of the largest reinsurers today put out some data kind of showing that reinsurance demand. I mean you guys have done a great job not only taking market share but kind of being able to keep your organic high because of that demand increased like mid-teens-ish this year. And if we kind of think about what's going on in personal lines, there's a lot of inflation. So just curious, would you expect kind of demand for reinsurance, I don't know if you think all the way into '25 yet, but to remain at kind of pretty high levels relative to historical and relative to this year?

It'll go up. Yes, I do, for a lot of reasons. I think that you're going to see the opportunity to buy more at prices that look more reasonable. And there have been cutbacks in the purchase of certain. The other thing is that these nuclear verdicts are real, and people are seeing that. And they're going, it doesn't cost us much to buy on the high end, the top of the tower, as it does down when there's a lot more activity. And I just don't want to be sitting here when some goofball jury comes up with a $1 billion award.

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

I guess, for my first question, during your Investor Day, you spoke about net new business wins. And clearly, your results reflect that. I was wondering if you could give us some more color on how the quarter shaped up and how we should think about your net new business in the second quarter versus, say, the net new business wins in the second quarter last year or some additional metrics around that.

Well, it'll take me a minute to dig it out. But I can tell you that June year-to-date, we've actually expanded the spread between new and lost by a full point. And I think that's probably the best way to look at it. The absolute numbers are kind of irrelevant. Our nonrecurring is also coming back. Before, some of the nonrecurring revenues might have been putting just a slight drag on organic. But now they're actually being in line with just our recurring business. So you're seeing an expansion of our spread between new and lost. How do we see that going forward? Greg, it gets more and more complicated. I actually think our team will do a better job showing our wares and our capabilities in a more of a stable rate environment versus kind of some of the chaotic rate environment that we've been seeing over the last few years. We've developed -- we spent so much money on resources in the last 5 years. Three of those were consumed with COVID. Two of those have been consumed with some chaotic market behavior. Put our guys on a field with kind of calm rate environment, a client that's not trying to just save their business and rebuilding it after COVID, I think you'd be amazed at the digital and data and analytics and expertise. And now bring our reinsurance folks into bear, stack them up with our wholesalers, I got to tell you, it is a compelling offer at the point of sale that I would think that would absolutely deliver better net new business, more new, less loss, as our clients really see the capabilities that we have built over the last 5 years. Arguably, maybe we've spent $1 billion in capabilities over the last 7 years, something like that. So that's going to come out at the point of sale. And give us a little calm in the market, and I think you're going to see our new business continue to go up.

Excellent color. One of the things you've also talked expansively about in the past is the offshore centers of excellence. And this kind of dovetails with the opportunities for margin expansion. Is it your sense for Arthur J. Gallagher that you sort of maximize those opportunities? Or do you see further potential to -- for more opportunities in off-shoring to help drive some margin improvement?

This is Pat, Greg. Let me take the operational side of that, and I'll throw the ball to Doug for the numbers and any kind of discussion there. But everywhere I look, I see opportunity and unbelievable benefits from using our centers of excellence. We started off checking policies 20 years ago with 12 people. We now have 12,000 people supporting over 400 services in 100 countries. It is unbelievable the level of professionalism that they help us attain. And that is a differentiator at the point of sale. It's a differentiator when we're recruiting. It's a differentiator in everything we do, and I don't see any sense of that slowing down or not being something that continues to expand. It's not just about replacing heads by any means. It's about having the people that should be doing things doing them, and freeing up those that should be doing other things, giving them the time to do that, which I do think feeds into retention and new business. So I think the -- our centers of excellence are a unique product offering, back to Doug's point, about all the things we've invested in. I think they are a very beneficial add to our sales list of things we provide at Gallagher. And as we grow through acquisitions alone, everyone of those people join us, and we immediately start plugging them into this resource, which is another one of the reasons they join us. So to me, it's a very differentiating thing that we do. I think our team there is absolutely spectacular, and I'll let Doug address the numbers.

Yes. I think if you talk about the growth path of our offshore centers of excellence, I think, remember, they work only for us. They're an integral part of our team. There isn't a they or we. They are us. If you look at some of our outlook, if we're going to be $20 billion of revenue, there'll be almost 30,000 folks there. So the growth path of our India and other area service centers will grow faster than the head count in our other areas. But more importantly on this is we've been on this nearly 20-year journey now to standardize, make our operations consistent. It really is going to allow us to deploy AI into that environment. AI is terrific when you have consistency of information and repeatable behaviors and processes. And we have that, and we've spent nearly 20 years doing this. We have a jump, I believe, compared to most, by almost a decade. And I think that some of the tests that we're using with AI now will make our folks there better, will make the different type of job for our folks in the centers better. It will make our sales folks better, our service folks better. And I can speak, I've got 57% of my entire global finance, worldwide finance team, operating out of there, and I can see it going to 80%. So it is going to be a service and sales differentiator for us because of the hard work we've put in for the last 15 years.

Just a point of clarification. And I probably should know this number, Doug, but I don't remember. On the capital management side, you said, well, listen, if we can't do the deals, you get through your earn-out, you might consider share repurchase. When was the last time you guys were active in share repurchase?

Well, let's see. It probably was maybe in -- when was Brexit? Was that 7 or 8 years ago? Whenever Brexit was.

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

I just had a question. I was hoping to get a little bit more color on the July RPC acceleration that you mentioned, Doug. Maybe just a little bit around the lines. Is it property moderation kind of pausing? Or is it casualty acceleration? What is -- what's going on there?

Well, actually, a little bit of both. We actually saw it at property. And actually, property is a pretty heavy quarter for us here in the second quarter. If you think, it's about 1/3 of our business. I think here in the second quarter, it might comprise 50% of our mix. So property in July, we did see a slight tick-up. I'm talking 1 point or so. I'm not talking about it's 5 or 8 points. It's 1 point to 2. Casualty rates are showing some, I wouldn't say, acceleration. We used the word advancement in terms of where they are because -- but they're steady. We'll see what happens with the -- with pricing here in the second half of the year coming out of the carriers. So I would expect that to advance more. So not a jump up. But certainly, again, our dailies, they come out overnight. I looked at it last night, and we're seeing a tick-up on both property and on casualty.

Got it. And there was a line in the press release on the adjusted comp ratio that caught my eye, just where you noted savings related to headcount controls. That's the first time I've seen that in I can't remember how long. I'm just wondering. Is that a -- I guess, is that to do with -- something to do with the offshore centers? Or is this more of a concerted effort to show some margin expansion as we think about this year and into next year?

I think that the answer is this. First of all, if you look at what we did during COVID, we actually took out quite a few folks, and we've been hiring back since then as our business has grown into that. We haven't stopped hiring by any means, so it's not an indication of anything. I think the teams just are seeing that at their workload models, that we're probably okay staffed in the environment that we are right now. So I would read that into it, but nothing systemic, but just maybe that we've hired back into the capacity that we need in '23.

Got it. Okay. That's helpful. And then maybe just sneaking one more in. Just on the contingent commission accruals that you guys had made the true-up to this quarter. I guess, we have seen a lot of noise this quarter on casualty reserves, particularly on the more recent years. I'm wondering how you feel about the potential for more of those reserve adjustments to come through and how that might impact the contingents.

All right. First of all, on the supplementals, we've done pretty well year-to-date. The contingents, we did have some development that happened. We're probably not accruing as, I don't want to use the word bullish but I will for a second, as we were -- as maybe we could. Casualty, we're cautious on it. Some of our programs and some of our binding operations, you got to be a little bit careful on performance-related compensation there. But I don't see a systemic shift in how we believe that our total compensation is going to happen. Maybe some bumps a little bit per quarter, but we're talking a couple of $3 million on a $130 million number year-to-date, so it's pretty small.

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

On the Risk Management business, maybe we've gotten used to the elevated growth for quite an extended period of time, the 7% the next couple of quarters. Could you maybe just talk about the growth environment there relative to what it might have been in prior years? And what's your expectation? Is this a little bit of a lull? Or is this a good number?