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

Good afternoon, and welcome to Arthur J. Gallagher & Company's Second Quarter 2026 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 can 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 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 & Company. Mr. Gallagher, you may begin.

Good afternoon, and thank you for joining us for our second quarter '26 earnings call. On the call with me today is Doug Howell, our CFO, and other members of the management team. Before we get into the quarter, I want to take a moment to recognize the passing of Dave Johnson, a valued member of our Board of Directors. Dave helped guide Gallagher with wisdom, integrity and sound judgment, and he cared deeply about our company, our values and our people. On behalf of our Board, our leadership team and all of our colleagues, we extend our deepest condolences to Dave's family and loved ones. He will be greatly missed. And knowing Dave and the pride he took in this company, I believe he'd be very proud of what our team accomplished this quarter. Our team's disciplined execution delivered another excellent quarter, reflecting the continued momentum across our business. For our combined Brokerage and Risk Management segments, our two-pronged revenue growth strategy growing both organically and through acquisitions delivered total revenue growth of 24% in the second quarter. Organic growth was 6%, reflecting continued strength across each of our businesses. And we continue to generate excellent profits. This quarter marks 25 consecutive quarters of double-digit adjusted EBITDAC growth and another quarter of solid underlying margin expansion. Doug will break that down for you in a few minutes. On a segment basis, Brokerage revenues were up 26%, of which organic was 5%. We saw strong results from AssuredPartners and growth across retail P/C, wholesale, reinsurance and benefits. Nearly a year into the AssuredPartners combination, the business is performing well. Retention remains strong, and the teams are working great together. Our Risk Management segment, Gallagher Bassett, posted revenue growth of 16%, which includes organic of 12%, driven by excellent new business and strong client retention. Now I'll again touch on the 4 strategic pillars that have guided Gallagher's long-term growth for decades, growing organically, growing through mergers and acquisitions, improving our productivity and quality and maintaining our culture. First, organic growth. Our client retention remains strong. New business is excellent, and our clients' underlying business activity continues to be positive. Insurance rates continue to contribute to growth, but less than they have over the past several years. In this environment, only about 1 point of our organic growth is tied to rates. The bigger drivers continue to be new business, strong retention, exposure growth and the diversity of our model across P/C, benefits, reinsurance and claims. We're also benefiting from activity across construction, infrastructure, energy and data centers. These areas create new and more complex client needs where clients require more advice, broader capabilities and deeper expertise, and that plays directly into Gallagher's advisory strengths. Overall, we continue to view the global P/C market as segmented. Carriers are looking to grow where they are earning acceptable returns and remain disciplined where underwriting margins require support. Property continues to ease, especially on larger and cat-exposed risks. Small and middle-market accounts remain more stable. Casualty remains firmer given loss cost trends and underwriting discipline. Good loss experience accounts can typically see some premium relief, while accounts with poor experience are seeing increases. Let me spend a few minutes breaking down this by business. Within our global retail P/C business, broad market themes remained consistent with last quarter. And as expected, the softness in property was more pronounced in the second quarter given the seasonally heavier renewal mix. In the second quarter, we saw the following in renewal premium changes by line of business. Property was down 10%. Casualty lines, which included general liability, commercial auto and umbrella were up 3% overall. Professional lines, including D&O and cyber, were up 1%. Workers' comp up 2%, personal lines up 3% and package up 2%. Excluding property, renewal premium changes increased 3% in the quarter with higher increases in the U.S. versus international markets. It's important to remember that premium changes in Gallagher's revenues do not move one for one. As property pricing eases, many clients are opting in and using the savings to buy back coverage, increase limits or improve structure after several years of opting out and making difficult trade-offs. And in this environment, the value of our advice, advocacy and market access becomes even more important. Within U.S. excess and surplus, we continue to see a bifurcated market. Property, especially cat-exposed is the most competitive area right now. That reflects a pricing reset after several years of a very strong hard market, not a reduction in demand. Submissions and policy counts remain healthy and E&S continues to be an important solution for complex property risks. Casualty remains firmer. Renewal premiums are up mid-single digits and demand remains steady across general liability, excess liability and umbrella. At its core, the E&S market is driven by complexity. AI-related infrastructure, including data centers, difficult liability risks and other emerging specialty exposures often do not fit neatly in admitted markets. That creates a multiyear opportunity for our wholesale teams because clients and carriers need expertise, structure and speed as well as market access. Turning to London Specialty. Conditions are similar to what we are seeing in the U.S. E&S market. North American cat-exposed property remains competitive, while D&O, professional lines, financial institutions and cyber are more stable than they were earlier in the cycle. The clear exception is war-related risk. Marine, aviation and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment of capacity. Coverage remains available, but it requires careful structure and coordinated execution across markets. That is where our London, U.S. and international teams work especially well together. We are helping clients navigate increasingly dynamic markets. Moving to reinsurance. The market remains well-capitalized and renewal activity continues to reflect ample capacity. In the second quarter, we saw strong growth across lines and across geographies with excellent new business helping offset rate headwinds. That performance reflects broad-based contributions from areas including facultative, casualty and capital advisory, demonstrating that Gallagher Re's growth is not solely dependent on the pricing cycle. Conditions at the 4/1 renewals were generally consistent with those we saw at 1/1 with somewhat greater downward pricing pressure on the Japan-specific contracts. At the midyear renewals, including 6/1, property cat pricing moved lower again, reflecting abundant capacity. Demand remained healthy and many clients use the savings to improve structure by additional limits or better manage earnings volatility. Casualty remains more disciplined, particularly for U.S. focused risks given loss cost trends and prior year development. Even in a softer reinsurance market, clients need more than price. They need advice, structure, analytics and access to capital that plays directly into Gallagher Re's strength. Moving to employee benefits. We're seeing steady demand for employers -- from employers across health, retirement, benefits, executive benefits, life and HR solutions. Our clients remain focused on talent attraction and retention while managing pressure from increased medical utilization, advanced treatments and escalating prescription drug costs. That is why they value our advice, advocacy, creative plan design and cost management strategies, all of which continue to support demand and retention across our benefits business. Moving on to Gallagher Bassett. GB had another terrific quarter, driven by excellent new business and strong client retention. The team continues to broaden its capabilities and put data, AI and machine learning to work in very practical ways to improve service, drive better claims outcomes and create further operating efficiencies. These investments continue to strengthen GB's competitive position. And with good momentum and a healthy pipeline of opportunities, GB is well positioned for another strong year in 2026. Now let me provide some comments on our view of the economy. The U.S. labor market remains healthy with the number of job openings still ahead of the number of people looking for work. Our daily revenue indications have historically been a terrific indicator of economic activity. And our proprietary data from audits, endorsements and cancellations showed solid business activity throughout the second quarter and through yesterday. Our data continues to show that exposure units such as revenues, payroll, headcount or trucks on the road, to name a few, are still in positive territory and our clients' businesses are continuing to grow. So to wrap up my thoughts on our organic growth prospects, property pricing is moderating, and that's well understood. But property is only one part of our very large and very diverse portfolio. Client retention remains strong. New business activity is excellent. Client exposure growth is positive. We are also seeing clients opt back into coverage as pricing moderates and our growth is broad-based across geographies, client sizes and products. Most importantly, clients continue to need our advice, advocacy, analytics and market access. As risk becomes more complex, the value of Gallagher's expertise becomes more important, not less. That is why we remain confident in the durability of our results and in our 2026 full year organic growth outlook of 6%. Now shifting to our second strategic pillar, mergers and acquisitions. During the second quarter, we completed 7 new tuck-in acquisitions, representing around $63 million of estimated annualized revenue. Looking at our pipeline, we have over 30 term sheets signed or being prepared, representing around $500 million of annualized revenues. Our acquisition strategy continues to be a powerful driver of Gallagher's growth. Since last April, we've completed 38 acquisitions, including Woodruff Sawyer and AssuredPartners, and each one strengthens Gallagher in its own way, adding talent, capabilities, relationships and new growth opportunities. AssuredPartners is one example of that strategy at work. The business is performing very well. Retention is strong, and the teams are already better together. We're collaborating on opportunities, sharing capabilities, putting Gallagher's tools, data, analytics and expertise to work across the entire combined team. That is good for clients, good for colleagues and a strong message to other high-quality firms thinking about their future. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Good firms always have a choice and it'd be terrific if they chose to partner with Gallagher. Next, let me move to our third strategic pillar, continuously improving our productivity and quality. For more than 2 decades, we've been improving productivity and quality by standardizing workflows, building our centers of excellence and bringing more of our data together around the world. AI, digitization and automation are simply the next tools in that effort, and we are putting them to work across the broader Gallagher team. And the point is simple. These tools make our professionals faster, better informed and more productive, but they do not replace judgment, advocacy, relationships or accountability to our clients. Over time, they should help us serve clients better, further improve our quality, help us win new business and keep us growing the right way. Let me wrap up with our fourth strategic pillar, our culture. Gallagher is a growth culture company. Our culture helps us attract talent, welcome merger partners and execute consistently across a large and diverse global company. And culture is what makes our investments in talent, technology, data and AI work. Our people are willing to learn new tools and new ways of working when these tools help them serve clients better, improve quality and move faster. That is what helps turn investment into execution. We have the scale, we have the data. We have the operating discipline. And because of our culture, our people put those capabilities to work every day. That drives productivity, improves quality, helps retention, helps new business and over time, it shows up in our financial performance. So when we talk about Gallagher's performance, our culture is not separate from the numbers, it's embedded in them. Okay. Another excellent quarter behind us, a terrific future ahead of us. I'll stop now and turn it over to Doug to walk through the financial details. Doug?

All right. Thanks, Pat, and hello, everyone. Today, I'll spend about 2 minutes flipping through our earnings release and give some quick highlights. Then I'll spend about 5 minutes on the CFO commentary document that we post on our website, and then I'll close with a minute on cash, M&A and capital management. Overall punchline, which you probably already dug out, we had a great quarter, right in line and in many cases, better than we had forecasted in our June Investor Day. One housekeeping reminder before I jump in. In the first 3 quarters of '25, our Brokerage segment earned investment income on the funds we are holding to buy AssuredPartners. Second quarter '25 revenues and EBITDAC were benefited by investment income of $144 million, that's $0.42 per share. And as a reminder, for the first quarter '25, that was $143 million or $0.41 and third quarter '25 results had $76 million or $0.22 of income. This has caused and will again cause in the third quarter a lot of comparability noise. Fortunately, this headline headache will be behind us by the fourth quarter. Okay. Let's go to the earnings release, Page 1. Removing from prior, the impact of investment income on AP funds, as I just noted, you compute adjusted revenues, adjusted EBITDAC and adjusted EPS each up over 30% for our combined Brokerage and Risk Management segments. That's an incredible quarter and demonstrates our 4 strategic pillars are delivering terrific shareholder value. Next, when you combine brokerage organic at 5% from Page 3 and risk management organic at 12% from Page 5, you'll get to that 6% organic growth that Pat just cited. This is excellent execution right in line with our June IR Day forecast. One other note, Brokerage posted excellent combined supplemental and contingent growth and risk management had strong performance bonus revenues, both reflect the value we bring to our clients and capital providers. Moving to Page 4 and top of Page 5. As we've been discussing for nearly a year, the current quarter percentages at the bottom of these tables are really not all that helpful when compared to the prior year because of the interest income we earned in '25 on the AP funds. That really clouds comparability. So it's better for me to defer comments on our brokerage EBITDAC margin until I get to Page 7 of the CFO commentary. That said, when I do, you'll quickly see that our productivity and quality strategic pillar delivered strong underlying margin expansion this quarter, right in line with our IR Day forecast. So moving to Page 6. No impact on these numbers from interest from holding AP funds. Risk management showed continued operational efficiencies, leading to an adjusted EBITDAC margin up 140 basis points to 22.3%. That, plus excellent revenue growth of 14%, led to 22% growth in our adjusted EBITDAC. Looking forward, we see third quarter and full year '26 adjusted EBITDAC margins north of 22%. Flipping to Page 7. Corporate segment adjusted results in total were a bit better than what we provided during our June Investor Day. That's mostly due to a small movement in unrealized FX. And as I've said before, this is a noncash item, but it does move our corporate results around a bit as the foreign exchange rates bounce around. Last, on Page 8, about halfway down, you'll read we repurchased about 850,000 shares for approximately $170 million in the second quarter. That brings repurchases to about $480 million through June 30. Okay. Let's now go to the CFO commentary document. Starting on Page 3. Most items here are very close to what we provided in June. A couple of call-outs. The FX impact has been [ updated with ] the latest exchange rates, and we have updated our noncash earn-out expense estimate to reflect a couple of earn-out payments made in the quarter. So just double check these items as you consider -- that these are considered in your models. Moving to Page 4, organic growth by business. Here are the punchlines. First, we saw another solid quarter of organic growth across each business and geography. APAC, Specialty and Risk Management, that's Gallagher Bassett, each had a really strong finish, and all others were right in line with our forecast provided during our June IR Day. Looking forward, we've added our third quarter organic growth outlook and updated our full year. Percentages reflect the midpoint of our estimates and reflect similar new business retention, client business activity and economic conditions that Pat just provided as well as our view of where rates might be. For full year, we brought up APAC and Gallagher Bassett a bit due to their strong second quarter and reinsurance rounded down really less than 1 point. So not much new news from our June IR Day outlook. We are still comfortable with our full year total company organic outlook of 6%, brokerage at 5.5% and risk management at 9%. We post that, and '26 will be another year of excellent organic growth. Okay. Let's move to the top of Page 5, the investment income table. A couple of quick comments here. First, on the left side, this is where you see the interest earned on the '25 -- earned in '25 on the funds we were holding to buy AP that I mentioned earlier. And second, our '26 forecast reflect current FX rates, changes in fiduciary cash balances and assumes no rate cuts this year. Staying on Page 5, but shifting down to the rollover revenue table, which excludes AssuredPartners. Three comments here. First, the second quarter '26 column subtotal of $66 million for brokerage came in pretty close to our estimates that we provided in June. Second, please make sure you adjust the prior year revenues for the amount noted in the divestiture and other line before you apply your organic growth assumptions. Then third, the pinkish columns to the right reflect 2026 revenues for M&A closed through yesterday. But remember, you'll also need to make a pick for future M&A. Moving to Page 6, and this is information on AssuredPartners. Five comments here. First, AssuredPartners second quarter EBITDAC of $222 million came in at our June Investor Day estimates, and we remain confident in our full year '26 outlook. That's really great performance. Second, remember that forecasted numbers we provide in this table are at the midpoint of our estimates. As we convert locations onto our systems, there could be some small movements between quarters and some additional revenue netting like we have seen over the last couple of quarters. Third, my standard reminder that for third and fourth quarters, '26, you should only model the delta between the future estimates in pink and the '25 numbers in blue. Otherwise, for example, you'd be double counting about $500 million of revenue in the third quarter. Fourth, the footnote reminds you that the noncash figures shown on this page, which reflect depreciation and earn-out payable are included within our estimates on Page 3. So please don't double count these. And fifth, importantly, you'll read in the footnote, we still see annualized run rate synergies of $160 million by the end of '26 and then up to $325 million by early '28. Now one heads up here. This table does not include synergies. Those synergies are shown in the margin walk table on Page 7 for '26, so don't double count. So moving on to Page 7, the Brokerage segment margin bridge. This table makes it very easy to see all the components that influence our margin change period-over-period. So here are some punchlines. AP is delivering margin lift. Our productivity and quality efforts again delivered another terrific quarter of underlying margin expansion of 50 basis points. Looking forward, you'll see to the far right, we're still forecasting full year '26 underlying margin expansion of 40 to 60 basis points. All of this is right in line with what we provided at our June Investor Day, and we deliver on that, and it would mean another outstanding year of margin expansion. Moving to Page 8, our Corporate segment. You'll see that our adjusted second quarter as well as our outlook for the rest of the year are very close to what we presented in June. So there's really no new news here. Also a reminder, the upper right box is where you find the impact of FX that I mentioned earlier. And then the lower box shows you the $3.4 billion of future tax savings from tax credits and tax deductible intangible amortization. That means your models should reflect cash taxes paid at about 10% of EBITDAC and you'll get close. These credits and deductible amortization shields create a nice cash flow sweetener to fund future M&A. All right. Let me wrap up with a few comments on cash, capital management and M&A funding. When I look forward, available cash on hand, expected free cash flows and future investment-grade borrowings, we estimate close to $10 billion of capacity to deploy over the next 2 years. We still favor M&A, but it might also do share repurchases opportunistically. Currently, our M&A pipeline remains strong and is full of targets at attractive multiples. Staying consistent in our approach and disciplined in our pricing creates immediate shareholder value through a nice arbitrage. It also builds a bigger team that brings value to our clients and makes our offerings compelling to our prospects, and that fuels our long-term growth. That creates long-term shareholder value. Okay. Those are my comments. Another fantastic quarter and continued expectation for another terrific year. Back to you, Pat.

Thanks, Doug. Operator, I think we're ready for some questions.

[Operator Instructions] Our first questions come from the line of Mike Zaremski with BMO Capital Markets.

I guess my question is specifically regarding RPC and pricing. And I believe reinsurance organic doesn't flow through RPC. So feel free to add it in your answer, if you'd like. But we get asked a lot, I'm sure you do too, about "if the overall pricing environment continues to moderate into '27, can brokers such as AJG, will they continue to show a decel trend?" You all have shown kind of more stability in the face of declining RPC. But maybe you can kind of help us understand, do you feel like the RPC, we've kind of based here in terms of pricing, in terms of your expectations thinking out the next 6, 12 months? Or even if it does go down a little bit, can you -- can AJ continue to kind of decouple and you feel like your organic's kind of based because you guys have done a much better job at selling and kind of just growing organically despite downwards RPC pressure. So any help there would be great.

This is Pat, Mike. Yes, clearly, look, the market is the market, but we hold ourselves accountable every day to sell a lot of insurance and to get new business on the books. We measure that very clearly. Our pipeline is strong as could be. We look at what we're writing on an annualized basis literally every week. We monitor that. We look at it. We know whether we're strong everywhere. And I will tell you, around the world, as we said in our prepared remarks, the differentiation that we're seeing with the tools that we've built, our capability of getting at data, showing that to clients, it's making a difference. So I think our retention is solid. New business continues to be very strong. One metric we don't typically provide is velocity. What type of new business are we writing against trailing earnings. Those are very, very strong numbers in our company. I don't want to give them out because then you'll ask me for a comparator every quarter, and I'm not going to do that. But the fact is we measure that all the time, so we know, look, what's happening. So I feel very good about being able to sell in this environment. I also feel good comparing this to past soft markets. Every other past soft market, the market has dropped like a brick across every line all at once. This is a property reset. That's what this really is. And by the way, our clients deserve that. When we talk to our clients in '17, '18, '20, '21, and we're trying to explain why prices have to triple, why at the same time, values have to triple or double and why maybe we don't even have a full line of cover to offer them. So today, I think they're benefiting from that. And as we said, people are, in fact, buying more insurance. So I look at this and I go, look, it's a different market. Gallagher thrives on change. The complexity of the world today, what's going on in data centers, the supply chains and war risk, I think it tees us up very, very well for continued growth. And sorry for the long-winded answer. But yes, I think we'll grow through it.

Okay. That's helpful. And my follow-up probably for Doug regarding kind of your long-ish term or maybe not to long-term kind of margin potential improvements due to the technologies such as AI. And kudos to you all for being the first out there with kind of a strong viewpoint. One of your peers came out with a strong viewpoint today as well with a time frame that's fairly quick in terms of implementation in its early days. I guess one of the pushbacks we get is that some of these AI solutions might not have kind of locked down long-term costs that are known and could maybe creep up over time. Just any thoughts on that latter statement?

I think the cost of AI will be de minimis for the savings that we will be able to realize because we have already put in the cost effort to centralize and standardize our data and our processes. So I think a lot of that cost, it's not directly to the technology called AI. It's the cost of implementing it and then changing your environment. So I believe we have already spent that money. So the cost for us to continue to implement AI is pretty small relative to, let's say, another company or any company that's just starting from ground zero.

Our next questions come from the line of Elyse Greenspan with Wells Fargo.

My first question is on the brokerage organic, right? So I believe through the first half of the year, you guys are around 5%. If we calculate, it's a 4.6%. You guided to 5% in the Q3 and then the full year guide is 5.5%. So I'm trying to kind of square and I know that this is the first year you guys have given a precise full year number. Normally, it's a range. But if the guide for the full year is 5.5%, that implies something at least within range of a 7% for the fourth quarter. So I'm just trying to understand if you're just waiting to update the full year guide after we get through the Q3 and you give us the fourth quarter? Or are you assuming some kind of uplift in the fourth quarter? And what would that be driven by?

Right. Two answers. First, the numbers we do provide in the pink on Page 4, they are the midpoint of our estimates. As we get closer to the end of the year with more behind us than there is in front of us, obviously, those -- the ranges get smaller around those numbers. So it is a midpoint of an estimate. Second of all, this is a ground-up analysis. We believe that when we work through our data and we understand what's going on in our business, this is ground up and we give it to you as we get it from the divisions and the units that have been pretty darn close in the past. There is some variability around it. But I think we're sitting here on -- we've got 5 months of the year left, and this is an estimate. I think if we post these numbers anywhere near these numbers, it's going to be a fantastic year. So yes, it would say that we'd have a little bit of a step-up in the fourth quarter relative to these numbers. Why is that? The second quarter is a little bit low because of the property renewals that we are more impacted by property in the second quarter, that seasonality, and we won't see that as much in the fourth quarter. So that's probably the primary driver in it.

And then my second question is on AssuredPartners. You guys will annualize the deal right in the third quarter. So I know it's only going to be in organic, right, for a small part of the year. I'm just -- if you could give us a sense of just the underlying growth AP has been seeing. And then within the CFO sheet, when you're thinking about part of the third quarter and the fourth quarter organic, what are you assuming for growth for AP?

All right. First, I think that we're sitting at this as we're clearly not going to have a stub period in the third quarter to report organic. We closed it on August 18. I think that we'll probably target to start showing organic for AssuredPartners beginning with the fourth quarter, but let's just see how well our conversions do, and I can give you at least anecdotally what we're seeing. We're running around 4% right now with AssuredPartners. And I think that pretty well stacks up with a lot of the like-for-like businesses here in the U.S. that may be a point lower. The numbers that you see on Page 4 for the -- well, you don't see the fourth quarter, but for the full year do not include AssuredPartners, but we think that we'll be a year into it. They have the sales tools on their desk, and we're getting a lot of success coming out of it. But right now, they're running around 4%.

Our next questions come from the line of Greg Peters with Raymond James.

So I guess I'll pivot. One of the areas, important areas is M&A for you guys. And, boy, the whole sector has experienced a massive step change lower in the valuations. Just curious if you've seen any flow-through in terms of expectations from sellers on exit pricing as a result of what's happened to the valuation, the strategics. And any commentary on -- I know there's a backlog of PE-sponsored vehicles out there looking for some sunlight. Just curious what kind of rhetoric you're hearing in the marketplace on that topic as well.

Well, I'll just do the anecdotal stuff and Doug can give you the facts. The anecdotal side is everybody is talking about the reset, Greg. And you've got a lot of consulting brokers out there selling into the community saying that, hey, if you got a great firm, those multiples haven't changed a bit. There's an awful lot of demand, pent-up new PE money is coming in, hang tight, it ain't happening. Multiples are coming down. And we're maintaining our discipline, and we're closing deals. Now also, you see a slowdown in our deal count. It's not as great as it was. And part of that, I believe, is sellers are actually reacting to the reset. They're realizing that the days of 15, 16, if you got a platform, maybe 17x EBITDAC are over. And so you sit there and go, well, okay, does that mean you're not going to be a seller at these prices. And I'm not going to give you a range on the downside because they do vary by what business they're in, the geography they're in, the size they are, whether they're a platform or not, and they are negotiated. And there is competition. As I said in my prepared remarks, they all have choices. But clearly, pricing is coming down. We are not in the business of diluting our shareholders. And we stand by that, and we're seeing reductions.

Yes, we're still getting a nice arbitrage. If you go back to Page 3 of the CFO commentary, we paid about 9.4x in the first quarter, and it is at 11.3x here in the second quarter. But notably, there were 2 acquisitions that we did that have, we believe, trading with ourselves synergies, and we don't put those in. When we do our tuck-in acquisitions, we don't assume synergies when we do the math. We've talked about that forever. When we do a large deal like AssuredPartners, we can estimate synergies on that. We understand how being better together can create revenue and expense synergies. Typically, we don't do that when we report out our information on Page 3. When you really peel it back, there's about $2 million of additional revenues that are going to come out -- excuse me, EBITDAC that's going to come out of a couple of deals we did in the second quarter. But by and large, we're paying around 9x for, let's say, U.S. retail and benefits businesses. Wholesale was getting just a little bit more and sometimes in the U.K. But again, if you factor in the synergies that we're getting and you see that on Page 3, we're clearly down below 11x, 10x on the multiple. That creates still an immediate arbitrage and value for our shareholders because we're still getting that multiple -- that pricing arbitrage there.

Excellent detail. Related to that, just I noted your comments about the $10 billion of capital to deploy over the next 2 years. You also mentioned the repurchase activity in the second quarter, building upon what you did in the first quarter. So you're prolific with the guidance you provide. Given the reset of the stock price, do you think that we should start modeling in some normalized run rate of share repurchase unless there's a recovery and just assume that's now part of the capital deployment strategy going forward?

Greg, I think here's the answer to that question is I wouldn't model much. Our acquisition pipeline is pretty darn good right now. And I think you're going to see more and more brokers that realize that the tools and capabilities that their customers need, they just can't do it. They just can't do it themselves. And so they need to -- great with their customers. They have great relationships, but we get to bring them an infrastructure that makes them better and provide a better service. They're probably sitting on the sidelines a little bit right now, but I think they'll be back. So I wouldn't model a ton of share repurchases, but we'll certainly be opportunistic.

Our next questions come from the line of Dean Criscitiello with Wolfe Research.

Since your M&A growth has sort of slowed in recent periods, I was wondering, right, meaning you guys are onboarding less producers inorganically, does that kind of change your hiring strategy? Or do you not think about the 2 in tandem?

Well listen, we're always open for business for producers. That's for darn sure. Anybody that thinks that they want to toil and spend their life with us, I think that this would be -- we think that we offer one of the greatest places to work. In terms of does it change our thinking, not really. I mean we think that -- we're not going to all of a sudden throttle more into organic hiring. But when -- I think there's a lot of folks that are going to be available in the future because I think the dream of where they are in PE-owned firms is probably turning into a little bit of a nightmare. So I believe that they might have more of an opportunity to hitch their star with us. So the market could present that opportunity.

Those are market hires, Dean, but we also remember, we have the biggest commitment I know of to interns. And our internship ends next week. It's 600 kids that have come in to look at our industry. Now we won't hire all those, but we'll make offers to the seniors probably 50%, 60% of them, and that's continuing on from the prior year and the prior year. And these young people validate faster than most people think. So I think that we're in a pretty good spot to maintain a sales culture that is pretty darn unique. And I do think Doug is right. It will also attract others that find they just don't have the tools where they are. And you can talk about jumping on the AI bandwagon and looking out to the future, but our clients are demanding this stuff today. And I think it does bode well. As Doug said, we are always open to recruit new seasoned producers, and we're loading the field with interns.

Yes. One thing just to point, we're really only running about 80% of our historical average on acquisitions right now. So -- we're running 80%. So we're not -- this isn't a huge step back in acquisition activity. We're talking about a 20% backwards, and that can change overnight when market conditions change.

Understood. And then my follow-up, yes, it seems like the organic growth in brokerage has been supported by strong organic and supplemental revenues. So can you just kind of highlight what's driving that? And then maybe talk about the sustainability of that in the future?

Premium growth equals supplementals and contingents, primarily supplementals. And we are a premium grower. Contingents, as you know, are contingent more on profitability, and that can go up and down if there's a reset in either premiums drastically or if there's a significant amount of loss. But those losses tend over the last few years to be typically property. So I think that, that line has managed well and should continue to grow.

And just as a reminder, I wouldn't place all that much stock on the individual lines because there are changes in contracts. So in this case, we flipped a bunch of contingent contracts into supplementals here, and that's why you're seeing -- you got to look at the 2 numbers together, and it's about 9% growth. One thing I will say maybe is that it shows you that the distribution is appreciated. And I think that the value we bring and the value we bring to the clients and what we bring to our carrier and other capital provider partners, it shows that we bring a lot of value in this value chain.

[Operator Instructions] Our next questions come from the line of David Motemaden with Evercore ISI.

Doug, in the past, you had thrown some numbers out there just in terms of potential cost savings from AI. I'm wondering if you have any thoughts in terms of when you think that those will be realized? And then maybe a philosophical question. When you guys think about that, is that something where you would announce more of a formal program? Or is that something that we will just see coming through as incremental margin expansion on top of the -- I think it was 40 to 50 basis points of sort of normal operating leverage?

All right. So it's incremental to the underlying margin expansion that we talked about to that point. If you recall, I think I said that we would get about 5% savings in our production layer cost, maybe another 10% to 15% in our support layer costs and maybe the 20% to 30% in our back office layer. I don't see any difference in that today. And I think it will take us 3 to 5 years to fully realize those levels. Now that math would produce 600 basis points of margin expansion. I've cautioned that maybe there's going to be offsets to a certain extent. So maybe we can harvest 2/3 of that. So maybe there's 400 basis points there in the way we look at it. We have 1,000 projects, flowers blooming now. We've got dozens and dozens of real tangible projects that are showing immediate results. So I'm still very comfortable in viewing that it can make us better and more cost efficient. it's real. It's happening. And I think the work that we put in, in the past is -- will pay a huge dividend because we're already centralized in so many of our points. Here's a point. Never once over the last 20 years did we talk about that we were launching a program to move work to lower-cost locations. We were not talking about the -- we didn't talk about the investments that we were made in the system. If you go way back when, I said that there was probably 1 point of margin that was being reinvested every year in betterment type improvements. That's true today. And I think that you have to understand this is just cultural for us. We do this every day, and it's not something where we're going to announce a huge transformation exercise. You'll just see us naturally do that over time.

Okay. Great. I appreciate that. And then maybe just as a follow-up, just on the reinsurance side, obviously, still very good growth and the outlook was lowered a little bit, but still solid at the 9%. Is specifically coming from share gain versus buy up and just pure rate pressure? Just sort of thinking through the sustainability of that as we move forward into the next few years.

Yes. Most all of it is net new business. I think that's the way you've got to look at it. I think that the buyers are recognizing the value that we bring, and I think they're giving us a great shot to tell our story. So this is -- there's 3 of us at the table that are very strong at this, and I think they're realizing exactly how strong we are. So we're winning a lot of new business.

Our next questions come from the line of Andrew Andersen with Jefferies.

Just since announcing the AP transaction, the expected run rate synergy has increased a few times. Could you maybe just talk about whether that's coming from existing synergy buckets simply proving larger than expected or entirely new sources of savings and revenue opportunities?

I think it's -- I think we're getting more revenue synergies than we maybe initially looked at and announced, that's great as we start trading better together. That's happening every day. And I think that I got to give it to our new partners that came from AssuredPartners. They recognize the value that other parts of Gallagher bring to their relationship with their customers. So that's good. I think from a cost standpoint, I think that we're just -- it hit exactly the right time where our U.S. chassis have the ability for all the investment we put into them over time to handle a substantial amount of additional revenue. So the additional adds on IT, real estate, back-office costs are pretty small. So we're seeing this come on to our systems without adding as much cost as we thought it might. So we're really picking up the volume advantages that we have here.

I'd also add when Doug talks about better together, this is not just Gallagher tools being well received by a new sales force. The better together, we've got a lot of terrific new professionals from AP working with side-by-side, the Gallagher folks and on their own, terrific production going on.

And then looking at the geographic table or the organic table and the geographic breakdown, it does seem like a lot of these regions, EMEA and APAC are kind of decoupling from what I would think is an even softer price environment. So could you just talk a bit about how you are able to capture these market share gains or maybe the exposure growth underlying it?

Well, listen, let's make sure we put this in perspective. When it comes to market share, there's $7 trillion of premium floating around there and we're touching $200 billion to $250 billion. So the fact is there's an infinite amount of market space for us to go. And I think our folks are just showing that the tools and capabilities are letting us outshine the competitors. But there is so much market opportunity out there. We're not bumping up against any problems of -- so market share is pretty hard to measure, but $250 billion out of $7 trillion, you can do the math. It's not a very big number.

And I will tell you that our -- when we look at our new business annualized, it's an astounding number and it grows every year. And as Doug -- the harder we run, we don't make any progress on really denting the share, but we know we're taking share.

Our next questions come from the line of Yaron Kinar with Mizuho Securities.

I had a question with regards to the M&A kind of being maybe at 80% of normal capacity. How much of a boost is that to margin in brokerage?

Well, listen, in terms of deal count, we've done 80% of our average over the last 10 years, something like that. In terms of lift that the M&A is providing in our margin, actually, the roll-in of M&A, if you go back to Page 7 of the CFO commentary, if you roll in, it provided no impact in the second quarter. First quarter was actually a little bit of a margin drag because of the seasonality of what we've -- so we haven't really -- if you look at our outlook, roll-in of tuck-in M&A, we're saying is not going to provide much lift on margin in the next couple of quarters. So when you aggregate them all together, you do get scale advantages. But when you're just rolling in 10 a quarter or something like that, those roll-ins are not providing much margin lift.