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

Good afternoon, and welcome to Arthur J. Gallagher & Company's quarterly investor meeting with management. [Operator Instructions]. Today's call is being recorded. 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 security 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 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 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, everyone, and thanks for joining us today. These investor meetings are a chance to hear directly from our business leaders, understand how the different parts of Gallagher fit together and spend a little more time on what drives Gallagher's growth over the long term. For those who may be newer to our story today should also give a good view of why we believe Gallagher can grow across all insurance market environments. A lot of investor questions right now come back to property pricing and what that means for growth. that's understandable. Property has been a meaningful tailwind over the last several years and conditions are changing. But when we look across Gallagher, retention is strong, the business is excellent and client activity remains positive. We also have a very diverse business, so our growth is not tied to 1 product, 1 geography or 1 market condition. I want to start by stepping back and talking about why the same 4 strategies of guided Gallagher for decades will continue to work. I'll also give an update on the insurance market and economic conditions, then you'll hear directly from our business leaders about what they're seeing in their markets and how they are using talent expertise, data, technology and AI to keep growing and serving clients. Doug will bring it all together financially and take you through the third quarter and our full year outlook. Our prepared remarks should last around an hour, then we'll open the line for questions. Our confidence starts with the same 4 strategies that have guided Gallagher for decades. Number one, grow organic. Number two, growth through mergers and acquisitions. Number three, increase our productivity and raise our quality; and number four, maintain and promote our culture. Those strategies have been tested through economic cycles, deployment cycles, interest rate cycles and insurance pricing cycles, and they continue to serve us well. The first 2 strategies work together. We grow organically, and we grow through mergers and acquisitions. Organic growth strengthens our clients' relationships helps us attract and develop great people and build our capabilities. Mergers add talent, expertise and new client relationships. Together, they make Gallagher stronger and a more attractive home for merger partners. Our strategy has created tremendous scale, but scale is not the objective by itself. What matters is that it gives our people deeper expertise stronger market relationships, more data and better tools to serve our clients. When a client has a claim, it gives our people more resources to advocate for that client and help get the best possible outcome. And for merger partners, it also brings resources and capabilities that would be very difficult to build on their own. And even with all the growth we've had, the opportunity in front of us remains enormous. Since 2020, we have grown organically over $3 billion and acquired more than $6 billion of annualized revenue, and we still touch less than 5% of the global insurance market. That gives us a very long runway to win new business organically and add talented merger partners to make Gallagher stronger. We have also shown the growth to translate into stronger profitability. Our EBITDAC margins have improved by nearly 800 basis points since January 2020, and we continue to see opportunities to improve productivity, raise quality and invest for future growth. and underpinning all of this is our culture, the way our people work together, serve clients to put new capabilities to use across the organization. The isolator growth and continued operating improvement into long-term value for clients, colleagues and shareholders. Let's start with organic growth. Insurance pricing still contributes to growth, but not as much as it has over the last several years. Organic growth also benefits from strong retention excellent new business and exposure growth and the breadth of our operations across PC, benefits, reinsurance and claims. In this market, we are also seeing clients use property savings to buy back coverage increased limits and improve program structure. So renewal premium and revenue trends do not move one for one. Our teams are helping clients use those savings to strengthen their risk programs. Looking to the balance of the year, we expect strong growth supported by renewal activity, continued new business momentum and strength across both brokerage and risk management. Doug and the business leaders will give you the specifics later, but the most important point is that we continue to see multiple drivers of organic growth across Gallagher. When you step back, the opportunity in front of us is tremendous. We operate in a large and growing market. We have capabilities in approximately 130 countries and touch about $200 billion of premium each year out of the $7 trillion marketplace. The risks our clients face continue to grow more complex, data centers, cyber, energy transition and changing liability exposures are all creating a greater need for advice and expertise. So we have a large and growing market increasing demand for what we do and a team with the expertise to help clients navigate those risks. That gives us a terrific opportunity to continue to draw our gain. The other important part of our growth strategy is mergers and acquisitions. Insurance distribution remains highly fragmented with an estimated 30,000 agents from brokers here in the U.S. and another 30,000 internationally. When a high-quality firm joined colder, we had talent, expertise and client relationships while the firm immediately gets access to capabilities that can help us service clients and grow faster, so as our net exporters, digital and AI tools, carrier relationships, a recognized brand and support for our centers of excellence to name a few. The net combination creates value in several ways. It received broader capabilities and better advice colleagues get more tools and career opportunities. Merger partners can grow faster as part of Gallagher and shareholders benefit as both businesses grow, become more productive and contribute to long-term earnings and cash flow. AssuredPartners is a great example. At year-end, performance is terrific. The integration is on plan, and our teams are already working together to serve clients and grow. We are better together. So far this year, we've completed 21 mergers, representing around $225 million of estimated annualized revenue. Looking at our pipeline, we have over 30 term sheets signed or being prepared, representing around $400 million of annualized revenue. We remain disciplined on valuation and focused on cultured it, and our ability to help high-quality firms serve clients, develop their people and grow faster continues to strengthen our position as a preferred acquirer. The third objective of our strategy is to increase productivity and raise quality and that has been a long-standing focus for Gallagher. More than 2 decades ago, we began building our centers of excellence. Today, more than 19,000 colleagues support many of our back office and client-serving activities. That investment has helped to standardize processes, improve our data and build capabilities across Gallagher that would be difficult to replicate. It also gives us a strong foundation for AI we are using AI to reduce repetitive work, improve access to information and help our brokers, consultants and claims professionals work more efficiently. That means our people could spend more time serving clients, solving problems and growing the business. AI complements their experience and judgment and helps them be more effective at what they do. The fourth objective of our strategy is to maintain and promote our culture. Gallagher's culture is what makes the rest of the model working. As we have grown, we have stayed team-driven, client focused and committed to doing business the right way that matters from our welcoming merger partners, investing in new tools and changing the way work gets done. Our people understand that better tools, better processes and better data help them serve clients more effectively. That culture is one of the reasons Gallagher has been able to grow, integrate and improve over such a long period of time. Now let's turn to the insurance market. Overall, we continue to see a segment in global PC insurance market. Carriers are working growing lines and geographies where they are earning acceptable returns while remaining disciplined were underwriting margins require the support. Property conditions continue to ease as capacity has returned while casualty remains firmer due to continued pressure on loss cost and underwriting margin. Across our PC brokerage businesses in July and August, we saw the following renewal premium changes. Property lines down 6%. casual lines up 5% overall, including general liability of 2%, commercial auto up 4% and umbrella of 7%. Professional lines, including D&O and cyber, were up 2% and personal lines up 3% and workers' compensation of 2%. Excluding property renewal premium changes are up about 3% for stronger increases in the U.S. than in international markets. So within our business, property remains the clear area of downward pressure, while renewed premium changes across the casualty classes remain positive. Although property conditions improved sequentially in July and August from the second quarter, it appears much of that improvement reflects seasonality and coverage mix, and I don't believe there is a change in market direction. It is important to remember that renewal premium changes in Gallagher's revenue do not move one for one, that relationship varies by line of business, client size and compensation structure, which property pricing fees, some clients are using the savings to opt in to more coverage, increase their limits and improve the program structure. Pricing is only one component of organic growth. In this environment, the clients need help structure and coverage, evaluating trade-offs and accessing the right markets. alters expertise, market relationships and data position us very well to navigate those decisions and continue winning business today A quick word on the economy. Through yesterday, our daily revenue indications from audits, endorsements and cancellations remain positive, pointing to continued underlying business growth. In the U.S., rising health care costs including the impact of new treatments and prescription drugs, continue to create demand for the advice and solutions we provide across our employee benefits business. So overall, the economic backdrop continues to support growth across our businesses. All right, let me preview what you'll hear from each of our business leaders, and then I'll turn it over to them. Mike will start with our Americas PC retail and specialty business. to talk about what we are seeing in the market and how our scale, niche expertise, technology, games advocacy and carrier relationships help our producers win and serve clients in a more competitive property market. Patrick will cover international retail PC in London specialty, including how we are connecting expertise, data, technology across our global platform, while continuing to invest in specialty talent. Tom will discuss Gallagher Re and our global M&A strategy, including why Gallagher continues to be an attractive one for high-quality products. Bill will walk through our employee benefits and HR consulting business. where rising health care costs and workforce complexity, continue to create demand for our advice, data and cost management solutions. Scott will cover Gallagher Bassett and our scale, data, technology and AI are helping to improve claims outcomes and support continued growth. Brad will then bring you all together financially. Okay. I'll stop there and gone to Mike Pesch to discuss our PC brokerage operations across the Americas. Mike?

Thanks, Pat, and good afternoon, everyone. I'm Mike Pesch, and I lead our Americas Property Casualty business. Today, I'll cover 3 topics. First, a brief overview of our Americas retail and specialty operations in the U.S. Canada, Latin America and the Caribbean. Second, what we're seeing in the insurance market, especially around property pricing and casualty. And third, why we're confident that our Americas brokerage business can grow through this environment, including how our investments in AI are helping producers strengthen client relationships and win new business. Our Americas retail PC brokerage operations span the U.S., Canada, Latin America and the Caribbean. In 2025, these businesses generated approximately $3.5 billion of revenue including the recent acquisitions of AssuredPartners and Woodard Sawyer, pro forma revenue would have exceeded $5 billion and roughly $35 billion of premium placed. The U.S. is our largest Americas retail operation, generating more than $3 billion of revenue in 2025. In Latin America and the Caribbean, we generate around $200 million of revenue across 15 countries. And in Canada, we are a top 5 commercial lines broker serving clients across all 10 provinces and 3 territories. Here, with the addition of recent acquisitions, Wilson Beck and Apollo, we will generate nearly $350 million of annual revenue. Within our Americas retail businesses, we serve and compete for commercial clients of all sizes. From large risk management clients to small commercial lines and also high net worth personal lines customers. The core of our business remains middle-market commercial clients who spend between $100,000 and $2.5 million on their annual insurance premiums. That translates into roughly $10,000 to $250,000 of annual commission and fee revenue to Gallagher per middle market client. These middle-market clients often have complex insurance needs, but limited in-house risk management resources. We combine trusted local producer relationships and specialty expertise, data and claims advocacy to bring them tailored advice, broad market access and practical risk solutions. That makes us an important part of how they identify, evaluate and manage their risk. It strengthens the relationship supports retention and creates more opportunities to grow with clients over time. And that matters in a market like this. Our growth is not simply a function of property and casualty pricing. It also comes from retaining clients, winning new relationships and helping clients make better decisions about their risk. One way we do that is through Gallagher Blueprint. It combines our data, analytics and specialty knowledge to help clients understand the biggest drivers of their total cost of risk and make better decisions about coverage, loss control and risk transfer. In practical terms, it helps our producers have broader conversations with clients, not simply about placing a policy, but about how clients can structure their programs and manage risk more effectively. Another advantage we bring to those client conversations is deep industry and product expertise through our niche practice groups. We have specialists across property, cyber, technology, construction, energy, reinsurance, space and executive risks who work alongside our producers to solve complex client needs. This niche strategy reflects more than 30 years of deliberate investment. It gives our producers access to specialized expertise that is hard to replicate and helps us win business deepen relationships and improve retention. Data centers are rapidly growing and increasingly complex area of risk and a good example of where Gallagher's expertise comes together. These projects create exposures across property, construction, cyber, energy, business interruption and executive risk. Capacity matters, particularly on larger projects, but it's only part of the answer clients also need flexibility, speed to market and expertise across the full life cycle from development through operations. Our teams work across Gallagher, including with Gallagher Re and our carrier partners to help clients structure the right solution. That expertise also matters when we bring a client to market. We help carriers understand the clients' operations, the risk, the loss control work underway and the coverage structure that makes sense, better submissions and better risk conversations lead to more informed underwriting decisions and better outcomes for our clients. And when a loss occurs, the value of having a broker is even more evident. If a claim is complex, disputed or initially denied Clients need an experienced advocate who understands the coverage knows the carriers and can help move the process forward. We help clients navigate those situations and pursue the recovery available under their policies. So they can stay focused on running their business. Those retail capabilities are complemented by our Americas specialty business. It includes RPS, our U.S. wholesale operation, along with Affinity risk program administration and alternative risk and captive management. With the addition of AssuredPartners, the business has more than $2 billion of annualized run rate revenue. Across specialty, we bring together market access, specialized products and expertise to help clients solve more complex risk challenges. Risk Placement Services or RPS represents about half of the specialty revenue and has grown to become one of the largest wholesale brokers in the U.S. It includes our open brokerage programs binding and MGU, MGA businesses. We engaged with over 25,000 retail brokers providing data, analytics, differentiated products and access to specialty markets and insurance solutions that align with their needs. The other half of revenue comes from our specialty operations, such as our affinity business, where we offer specialized insurance solutions for hundreds of national associations and affinity groups. Our risk pooling business where we support public entities, education, faith-based organizations, nonprofits and other member-based groups. And Artex or alternative risk solutions, captive management and IOS administration business. Artex is one of the largest captive managers globally and a leading player in the broader IOS market. Specialty gives us broader market access and more ways to solve client problems, especially when risks are complex or standard markets are constrained. It also creates more opportunities for retail producers and wholesale specialists to work together to win and retain business. Turning to market conditions across the Americas. Market conditions remain mixed. In U.S. retail, our property renewal premiums were down about 7% through July and August compared to down about 12% in the second quarter. That improvement largely reflects renewal timing and business mix. The second quarter typically includes more large cat exposed accounts and intermediary placements, where pricing has been more competitive. So I wouldn't view July and August as a broad turn in the property market. Outside of property, renewal premium change remains positive across most major lines. Casualty was up 7%, including general liability up 3%, commercial auto, up 6% and umbrella up 9%. Package was up 4%. Workers' compensation was up about 1%, and D&O, cyber and other professional lines were up about 2%. Altogether, renewal premium change, excluding property, was up approximately 4% through July and August, consistent with what we saw in the second quarter. And while compensation structures vary, renewal revenue continues to be more resilient than renewal premium. We're also seeing clients use some of the property savings to improve limits, coverage and program structure. Canada is experiencing somewhat softer conditions overall, with renewal premium changes down around 1%. Property is down around 4%, while other casualty lines are about flat. In U.S. retail, renewal premium change for open brokerage was up about 1% and binding was up about 2%. Property remained under pressure, down about 7%. Casualty was up about 7%, with general liability about flat, umbrella up 8% and commercial auto up 12%. Most other lines were up low single digits. Across the Americas, we continue to see rational carrier behavior with pricing differences driven by client loss experience. Good accounts are seeing some premium relief accounts with poor experience are seeing greater increases. This is a kind of market where our expertise, product knowledge and data-driven insights matter most. Every client has a different risk appetite, a different set of needs and a different budget. And our role is to help our clients navigate those trade-offs and find the right coverage at the right price for their risk profile. Delivering that advice consistently across thousands of clients requires more than expertise alone, it also requires giving our producers better data insights and the tools at the point of decision. That is where our investments in AI and digital capabilities are making a practical difference. We've continued to expand adoption of these capabilities across our producer base and embed them more broadly into our day-to-day workflows. SmartMarket is now used by many of our large carrier partners across our retail platforms, while Gallagher Drive is generating tens of thousands of dashboard views each month and helping our teams use comparative insights with clients and prospects. We've also built on Drive by layering in AI, so producers and clients can query coverages, limits and risk appetite more directly. Our integrated platform lets us scale these capabilities across the business. In practical terms, AI is helping our people turn our proprietary data into client insights, improved carrier matching and spend more time advising clients and pursuing new business. When you put it all together, the underlying trends remain strong. Retention remains strong. We continue to win new business and renewal revenue has been more resilient than headline premium. So while property pricing is softer, we still have multiple ways to grow across Americas retail and specialty businesses. We have great people, strong capabilities and better tools to help our producers win and deliver for our clients. That's why I feel good about where we are today and confident in our long-term prospects. With that, I'll turn it over to Patrick Gallagher, our Chief Operating Officer, to cover our other major property casualty retail operations as well as London Specialty. Patrick?

Thanks, Mike, and good afternoon, everyone. I'm Patrick Gallagher. Today, I'll focus on our retail P&C operations in the U.K., Australia and New Zealand along with our London specialty business. I'll cover 3 topics today. First, I'll provide an overview of international retail and how our common approach and capabilities support clients across these markets. Second, I'll discuss our London specialty business and the growth opportunities we see there. And then I'll finish with the insurance environment across both businesses and the key drivers supporting growth. Starting with international retail. Our retail operations in the U.K., EMEA, Australia and New Zealand generate approximately $1.6 billion of annual revenue and we placed more than $12 billion of premium for clients. Over the last decade, we have deliberately connected them through a common sales approach, global niche expertise, data and analytics strategy. digital tools and shared servicing capabilities. Our core client base within international retail looks similar to our Americas retail business. We primarily serve middle market and upper middle market organizations with complex insurance and risk management needs. We also provide brokerage services to large risk management accounts as well as smaller commercial and high net worth personal lines clients though to a lesser extent. Although the markets differ, many client needs are similar. Over the last decade, we have built a common global go-to-market playbook that combines risk management, niche expertise, data and consistent client service. That includes CORE360, our common framework for how we identify, assess and address client risk. This anchors our risk management discussions with clients and prospects of any size anywhere around the world. Our global niche practice gives clients access to our specialized industry and product expertise. These include areas such as energy, real estate, hospitality and marine. Our data and analytics platform helps our teams deliver more informed advice and create a more connected client experience through Gallagher Drive, SmartMarket and Gallagher Go. Gallagher Drive gives clients and prospects comparative insights drawn from similar clients around the world. They can see clients like me, including coverage mix limits, potential catastrophe exposure and claims forecasts. Those insights help our producers have more informed conversations and demonstrate Gallagher's value to both clients and prospects. SmartMarket connects our producers with the risk appetite of our carrier partners. It helps carriers identify business that fits their underwriting objectives and engage earlier in the placement process. For clients that can improve speed, market access and execution. It creates value for both sides of the market. and Gallagher Go gives clients a simple way to manage their insurance information and access Gallagher's capabilities in one place. It is becoming an increasingly important part of how clients interact with us. Our centers of excellence provide the standardized processes and data foundation behind those tools. We are applying AI to workflows such as policy checking, quote extraction and submission quality reducing manual work while keeping our professionals at the center of the client relationship. We are also seeing continued adoption across our digital platforms. Tens of thousands of retail clients are using Gallagher Go, while Gallagher Drive is generating tens of thousands of dashboard views each month. We are layering additional AI capabilities into Drive that allow producers and clients to query information such as coverages, limits and risk appetite more directly. And those comparative insights are supporting prospect conversations and helping our teams demonstrate value to existing clients. All of these capabilities reinforce one another. Our standardized processes, global data, centers of excellence, expertise and digital tools help our people deliver better advice and support both new business and retention. And as we apply AI across these workflows, our professionals remain at the center of the client relationship. Technology makes their expertise more accessible and gives them more time to focus on the decisions and conversations where their experience matters most. That is especially important when a client has a complex loss. Technology can help us analyze the information faster, but clients still need experienced professionals who understand the coverage, know the markets and can advocate on their behalf. These capabilities help us compete more effectively for new business, deepen existing client relationships and bring more of Gallagher's expertise to clients around the world. Now shifting to London Specialty. Here, our teams work with retail agents and brokers around the world to place larger and more complex risks across aerospace, marine, financial lines, casualty, construction, energy and property. The business generates more than $700 million of annual revenue and places more than $6 billion of premium annually. London remains one of our most important specialty insurance markets in the world and continues to be a key source of expertise, innovation and market access for our clients. London specialty growth has been very strong in recent years, and we still see many attractive growth opportunities. We are deepening our capabilities in specialty niches where clients need more expertise, including financial lines, cyber, energy, aerospace and marine. We are adding experienced producers and developing the next generation of talent through our Gallagher Futures graduate program. And we are improving placement deficiency and the route to market, including the use of structures that can produce better execution for clients and better economics than traditional placements. Those priorities help us attract new business, expand the work we do for existing clients and participate in areas where complexity and specialty expertise matter more than the broad market pricing. Turning to the market. International retail remains competitive and continues to vary by geography and line of business. In the U.K., renewal premium changes are up about 1%. And property is still competitive and down around 1%. Most other lines are combined to up 2%. Australia looks similar with renewal premium change also up about 1%. Property remains under pressure and is down about 3%, though package is holding up better and is around up 7%. In New Zealand, renewal premium changes remain under greater pressure and are down about 4% in total. The greatest pressure is in property, which is down about 6% and -- fashion lines, including D&O and cyber were up [ 2% ], and most other lines are flat to down slightly. Taken together, international retail continues to benefit from multiple drivers of growth, strong retention, new business, underlying exposure growth, and the timing of client renewals are all contributing to healthy organic growth in the business. In London Specialty, capacity remains ample, and competition is strong across many lines. property remains particularly competitive, including cat exposed risks, while conditions vary across casualty, financial lines, cyber, marine, aviation and energy. Today, different specialty classes are experiencing a multitude of conditions. In some areas, pricing remains competitive. In others, to our political developments and changing exposures are creating more pressure. In conflict-affected regions, we are seeing meaningful increases in marine war risk pricing and, to a lesser extent, in aviation tied to recent geopolitical developments. In some cases, that rate pressure is being offset by the slower activity. as geopolitical uncertainty delays investment, infrastructure and M&A decisions. This is exactly where specialty expertise matters. London remains the global hub for product creativity and development and the home for large and complex risks. In an environment shaped by conflict, political instability, climate change, inflation and higher insured exposures, we see continued opportunity for our London specialty team to deliver strong solutions for clients around the world. Let me spend a minute on how these pieces come together from a growth perspective. The growth pattern is different across the 2 businesses. In international retail, pricing remains competitive, particularly in property. So growth is being driven more by retention, new business client exposure growth and the timing of renewals. London Specialty has a different mix. Activity is more closely tied to large and complex placements, specialty risk and individual client needs. The timing of that work can vary from quarter-to-quarter based on the business currently in front of us, we expect a greater contribution from aerospace and marine later in the year. Growth is supported by mix and timing of the business already in front of us. Together with retention, new business and the investments we continue to make in talent and specialty capabilities. International retail gives us scale positions in attractive local markets. London specialty adds deep expertise and global market access. Across both client retention, new business, exposure growth and continued investment in talent gives us multiple ways to grow beyond pricing. I'll now turn it over to Tom Gallagher. Tom?

Thanks, Patrick, and good afternoon to everyone. I'm Tom Gallagher and I'll cover 2 topics today. First, I'll talk about Gallagher Re where we are today, the market environment and the opportunities we continue to see across the business. I'll then turn to M&A and discuss why Gallagher remains an attractive long-term home for merger partners and how that creates value for clients, colleagues and our shareholders. Let me start with Gallagher Re. Gallagher Re is now the third largest reinsurance broker in the world. We established our reinsurance business in 2013 and have grown it into a global business with more than $1 billion of revenue. Much of that revenue comes in the first half of the year, given the timing of our major insurance renewals. We provide advice, modeling strategy and placement expertise across treaty, facultative and other risk transfer solutions globally. As risk becomes more complex and capital more specialized clients rely on us to understand volatility, access capital and optimize program structure. We finished 2025 with 14% organic growth, and the momentum has continued in 2026. And importantly, that growth is broad-based. We are seeing contributions across property, casualty, specialty, as well as continued new business wins and benefits from the talent we've added across products and geographies. That gives us multiple ways to continue growing even as pricing changes. Our opportunity spans broader product capabilities additional talent, deeper client relationships, more formal forms of capital and stronger connections across Gallagher. That includes new solutions such as casualty retro protection as well as our digital risk practice, which bring together our cyber capabilities with broader expertise across emerging technology risks. We are investing in talent across key products and geographies, including global facultative capabilities, experienced producers and developing the next generation of reinsurance talent. We're helping clients assess additional access additional forms of capital through side cost, adverse development cover and cat bonds while continuing to build our capital market capabilities, and we continue to see opportunities across Gallagher. Our relationships with Gallagher Bassett, our retail business, Artex, specialty and our benefits team, can help us bring more capabilities to clients and create new opportunities across the business. Finally, technology, data, analytics and AI are becoming an increasingly important part of how we support our teams and serve our clients. We are using a practical ways to improve speed, quality and insight across Gallagher. In Workbench, AI extracts quote information from documents and e-mails and gives brokers faster access to market intelligence. We are also using proprietary data to identify trends across products and geographies, so our teams can bring sharper insight decline. That combination of people, data and technology matters even more in the current market environment. Our team recently returned from September [ Ronnen ] Monte Carlo, and message was clear. The market is well capitalized and buyers have more choice than they have had in recent years. That is leading to further price moderation in property and many specialty markets, giving clients opportunities to broaden cover. Casualty is more nuanced with carriers continuing to focus on underlying loss trends and program structure. But across the market, there is capacity available to well positioned and well structured risks. Geopolitical uncertainty remains an important consideration for certain portfolios, particularly around exposure analysis, coverage and program structure, but it has not changed the broader market dynamics. The conversation is also moving beyond price. In this environment, we're helping clients stress test coverage, choose the right program structure and mix of capital and address the geopolitical or specialty exposures where relevant. The value of the broker is also clear from the carrier perspective, reinsures and other capital providers need high-quality data, clear exposure analysis and well-structured opportunities. Our role is to help clients evaluate the trade-offs, explain the risk and bring the right opportunities to the right markets. That backdrop creates opportunity, but it also raises the value of our advice judgment and execution. Client demand remains strong, driven by underlying growth exposure. Exposure growth and the need for more sophisticated risk transfer and capital solutions. That gives us confidence in Gallagher Re's growth outlook across market cycles. Let me turn to M&A which has long been an important part of Gallagher's growth model alongside our organic growth push. Doug will cover capital allocation and financial discipline. I'll focus on strategic opportunity and why Gallagher remains an attractive home for merger partners and how our model creates value. We have a long track record of tuck-in acquisitions, and we continue to see substantial opportunity ahead. The brokerage market remains highly fragmented with roughly 30,000 agencies and brokerage firms in the U.S. alone, plus another 30,000 or so across our other major operating geographies. Most of these firms are smaller, privately-owned businesses that are often led by successful entrepreneurs who want to do more for their clients and create additional opportunities for their people. In this first both ways, our merger partners bring great talent, specialized expertise, market insight and strong client relationships. They make Gallagher better. Gallagher is merchant partners access to a broad set of capabilities that can help merge and partners serve clients and grow, including our specialized expertise across various niche practice groups. Access to our data, analytics and digital capabilities, including Gallagher Drive and Gallagher Go, broader solutions across retail, wholesale, benefit, alternative markets and reinsurance. Our deep carrier relationships and differentiated product offering and scalable operational support through our Gallagher Centers of Excellence. We also offer permanent. Gallagher is a long-term home where acquired businesses can retain their entrepreneurial approach while gaining access to capabilities that would be difficult to replicate in the gene. And of course, the transaction is only the beginning. Successful M&A comes down to retaining talent serving our clients and thoughtfully connecting each business to Gallagher's broader platform. We have developed that playbook over many years, and we're applying at greater scale with AssuredPartners, while still staying focused on integration execution and the experience of clients and colleagues. We're also using technology and AI to make parts of screening and diligence more efficient. While decisions about strategic fit, culture and integration remains firmly in the hands of our teams. When we execute on that model well, the benefits extend across each of our key stakeholders, merger partners gain broader resources and additional capabilities for their people. clients benefit from our greater expertise, stronger market insight and enhanced service capabilities. and our shareholders benefit as we add talented people, strong client relationships and specialized expertise to Gallagher and help those businesses grow over time. That is a compelling proposition for successful businesses looking for a long-term 1 and is 1 reason why we continue to see a healthy pipeline of opportunities. So we continue to see M&A as an important contributor to our long-term growth. It adds talent, expertise and client relationships to Gallagher while creating value for our merger partners, our clients and our shareholders. With that, I'll turn it over to Bill Ziebell to discuss Gallagher Benefit Services. Bill?

Thanks, Tom, and good afternoon, everyone. I am Bill Ziebell, Chief Executive Officer of Gallagher Benefit Services, our employee benefits and HR consulting business. My comments today will cover 3 topics: First, I'll provide a quick overview of GBS and the range of solutions we bring to clients. Second, I'll discuss the current benefits environment and how we are helping employers manage rising costs and broader workforce challenges. And third, I'll talk about how our data, analytics and technologies support that work. GBS was established in the mid-1970s and has grown into a global business focus on helping employers address their most important workforce and benefit needs. At the end of 2025, GBS was the fourth largest benefits broker in HR consultant in the world, generating around $2.5 billion of annual revenue. With the addition of AssuredPartners, our annualized run rate revenue is now more than $3 billion with greater reach across clients, markets and capabilities. About 2/3 of our annual run rate revenue comes from health and benefits with the remainder coming from retirement, compensation, HR consulting and related offerings. That breadth lets us address more of a client's needs over time, from mean benefits to retirement, compensation and broader workforce consulting, and that is a real advantage. Many local and regional firms cannot bring that full set of capabilities and for larger clients, we have the scale, expertise and global reach and more complex needs, while maintaining the local relationships that are core to Gallagher. That gives us more ways to help our clients and earn the opportunity to do more for them over time. We bring these capabilities together through Gallagher People strategy and how we help employers connect their benefits and workforce programs or what they are trying to accomplish as a business. Our role is not simply to place insurance. We help clients understand what is driving their costs, evaluate how their programs are performing and identify practical solutions that work for their people and their business. That is especially relevant today. Employers are trying to retain talent and provide competitive benefits while managing significant increases in medical and pharmacy costs. The current U.S. benefits environment remains supportive of demand for our services. Employers continue to focus on attracting and retaining talent, but managing rising benefit costs has become an increasingly important part of that discussion. Medical and pharmacy costs continue to increase, driven by higher utilization, provider costs, specialty medications and large claims. Across our largest carrier relationships, fully insured reals are generating increases that are coming in at renewals at 15% to 20% levels was some higher and some lower, depending on their claims experience. Stop loss increases are averaging 20% and higher, with medical trends for underlying claims for self-funded plans, increasing 10% to 11%. At the same time, employers are trying to maintain competitive benefits and keep coverage affordable for employees. Those objectives can conflict. Employers cannot simply pass every increase through to employees or can they observe at all from themselves. As a result, they are looking more closely at plan design provider networks pharmacy arrangements, funding strategies and employee communications that creates greater demand for advice, analytics and execution and more opportunities for us to help clients find savings and improve the performance of their program. This environment supports growth for GBS in several ways. First, increases the need for advice and creates more client engagement as employers look for ways to mitigate cost increases. They're looking at plan design, funding alternatives, pharmacy arrangements and other cost management strategies. Second, it creates new business opportunities. when employers are facing significant cost increases or are not getting the results they need, they are more willing to reconsider their strategy and seek broader advice. Third, Brett gives us opportunities to deepen existing relationships but in connecting health and benefits with pharmacy, retirement, compensation and broader HR needs. In short, rising benefit costs create real pressure for employers and can also affect retention. But at the same time, they increased the need for consulting, pharmacy expertise and plan redesign, areas where we can help clients manage costs and improve program performance. Data and analytics are an important part of that work. Across GBS, we have extensive data on our clients, including demographics and claims experience. Gallagher Drive helps identified cost drivers and benchmarks planned performance. while our AI-enabled benefits capabilities help employees better navigate their benefits and give employers greater visibility into utilization and program performance. When we combine these tools with the experience and judgment of our consultants, we can make our teams more effective and help clients make better decisions. We also share our expertise through thought leadership and client education on issues such as health care affordability, pharmacy costs, HR compliance and retirement that gives us another way to help clients and start conversations with prospects. Looking ahead, we feel good about the opportunity for GBS. Players are facing real challenges around benefit costs and workforce needs and they need the advice, data and execution our teams provide. We have more ways to help those clients today than ever before, and that gives us a strong foundation for continued growth. I'll stop there and turn it over to Scott Hudson, who will discuss our Risk Management segment, Gallagher Bassett. Scott?

Thanks, Bill, and good afternoon, everyone. I'm Scott Hudson, and I lead our third-party claims administration business, Gallagher Bassett. If you're familiar with our financial statement reporting. It's also known as the Risk Management segment. . I'll begin with an overview of Gallagher Bassett and then outline the key elements of our strategy. Along the way, I'll explain what's driving our recent growth and why we believe it can continue and how we're using technology, including AI to help our people make better decisions and deliver stronger client outcomes. I'll close with our third quarter outlook and how we're positioning the business for long-term success. Gallagher Bassett is one of the world's largest third-party claims administrators with approximately $1.6 billion of revenue in 2025 and more than 11,000 employees globally. Our core business is straightforward. We adjust and manage claims on behalf of our clients. We don't take underwriting risk. In 2025, we closed more than 1 million P&C claims and paid approximately $18 billion in losses on behalf of our clients. For context, that level of annual claim payments would place us near the top 5 P&C insurers in the United States. Moving to key elements of our strategy. We serve 4 types of clients. First, we serve large commercial clients, that Fortune 1000 businesses. These clients have balance sheets that allow them to have large deductible programs are self-insured. They then outsource the claims resolution process to us. This is our most mature and largest client segment. Second, we serve clients in the public sector. This includes municipalities, state entities, federal governments and school districts. Third, we serve group captive or alternative market clients. These insurance entities utilize our services for their claims handling infrastructure. Our fourth and final client segment is insurance carriers. These are underwriting enterprises that choose to fully outsource our white-label portions of their claims operations. We continue to see significant long-term opportunities for DB in this segment. Approximately 90% of U.S. claims are still handled internally by carriers and the same is true outside the U.S. At the same time, many carriers are dealing with aging systems, adjustor shortages increasing claims complexity and pressure to control costs, outsourcing to us can help address these challenges. North America currently represents approximately 80% of our revenue and continues to present significant growth opportunities with continued runway to expand to new business wins, deepening our client relationships and expansion across products and services. Most of the remainder comes from Australia with a smaller share from EMEA. These international markets provide meaningful long-term opportunities as we expand our capabilities and global reach. Our broad expertise across workers' compensation, liability and property claims allows us to support many of our clients' most important P&C exposures. Within liability, most of our volume comes from auto and general liability claims with additional expertise in specialty areas such as cyber, environmental, marine, medical malpractice, professional liability and product liability. Within property, we focus on specialty classes and complex claims rather than large-scale storm or catastrophe adjusting. In terms of our revenue mix, roughly 60% of our adjusted revenue comes from workers' compensation, about 1/3 from liability and approximately 7% from property. And with our acquisition of My Plan Manager a few years ago, we also expanded into disability claims management in Australia. Today, we're the largest provider in that market and closed nearly 6 million claims in 2025. Clients choose us for our deep expertise, outstanding service and consistent execution. Our goal is simple, deliver better claim outcomes. Better outcomes look different for different clients that may mean helping clients to prevent or reduce losses, accelerate employees return to work, shorten claim duration or even improved climate satisfaction. And our clients also have different objectives for the claims programs. whether protecting their brand, strengthening customer loyalty are helping employees return to work sooner. Our job is to understand our clients' objectives then tailor our services or customize solutions to align and ultimately deliver greater value. Those outcomes ultimately drive retention, referrals and new business. which are many of the reasons we've been able to sustain our strong growth. Let me turn to technology and AI. GB's extensive claims data is a significant advantage. Combined with our expertise, it provides a strong foundation for improving outcomes. Our proprietary platforms, including GB Navigator and Luminos, give claims professionals and clients easy access to this data and convert it into actionable insights. As AI capabilities to expand the value of our data and platforms will continue to increase. We're applying AI at key points in the claims life cycle. We've built models to predict workers' compensation and auto liability claim severity to prevent litigation and to detect fraud. For one client alone, our frog detection model has identified more than $100 million in potential savings, and now we're deploying it to many others. AI-driven tools, such as our claims summarizer which is embedded in GB Navigator, reduces administrative work and gives claims professionals more time to make decisions and build relationships with claimants. And we see further opportunities to apply AI throughout the claims life cycle. Our goal is simple, help claims professionals make better decisions, strengthened climate relationships and deliver better outcomes. Finally, we're using AI speed technology development. bring new capabilities to production sooner and increase IT productivity. At our June meeting, I was asked whether these investments are helping us win business. The simple answer is yes. technology and AI aren't the only reasonable winning, but our extensive data and advanced tools strengthen our ability to deliver better outcomes and make our value proposition more compelling. The last element of our strategy I'd like to highlight is M&A. While the TBA industry is more consolidated than brokerage, we're focused on the scale. We're focused on, not on scale, roll-ups. Instead, we're looking for targeted acquisitions that add specialty capabilities or expand our reach geographically. This year, we completed 2 acquisitions that strengthened our marine specialty capabilities and expand our presence in key international markets. And today, we have an active pipeline of potential merger partners across our major geographies. As we look at the business today, momentum remains strong. In the second quarter, TB delivered 12% organic and an EBITDAC margin of 22.3%. That performance reflected strong client retention, new business and growth within existing accounts, along with continued improvements in productivity. Given that momentum, we're updating our organic growth outlook to approximately 10% for the third quarter and perhaps near that for the full year. We continue to expect EBITDAC margins of around 22% for both the third quarter and full year '26. So as we look ahead, we feel very good about where the business is positioned. We have strong retention healthy new business pipelines and continued investments in our people, technology and products and services to support our long-term growth aspirations. Longer term, we anticipate margin expansion driven scale efficiency and continued productivity improvements. Okay. I'll stop now and turn it over to our CFO, Doug Howell. Doug?

Thanks, Scott, and hello, everyone. So over the last 15 minutes or so, you've heard a pretty consistent message from the team. Demand for our services remains strong. The market today feels a lot like the first half and the diversity of our business continues to make our performance more consistent across any cycle. You also heard that we're not standing still. We're investing in organic growth. We continue to attract good merger partners. We're using our centers of excellence and AI to drive productivity and quality, and our scale gives us a real advantage as we continue to differentiate Gallagher in the marketplace. So what I'm going to do today is walk you through the CFO commentary document that we posted on our website. I'll add some call outs and then elaborate a little bit more on just what you've heard, then cover cash, M&A and capital management. All right. So to start, let's go to the CFO commentary document, starting on Page 3. Page 3 includes the usual modeling helpers with only real one call out for you to consider. The dollar moved a bit over the last 6 weeks. So we've updated the FX impact to reflect the weaker down. If you turn to Page 4, this page recaps our organic outlook you just heard from the operating leaders. I want to spend a minute or so here. Two points I want to make on this page. First, each of our businesses has continued the momentum we saw in the second quarter. Now being 2 months into the quarter, I have further confidence in third quarter organic of about 6%. For the brokerage organic, no real change in the overall story. We're still expecting about 5% organic in the third quarter. Yes, you'll see some -- a few puts and takes between the businesses. some new wins coming in and a few projects moving between quarters. But overall, we feel good about the outlook. For risk management, some new business wins and international growth have increased our growth expectations, as Scott just said. We're now expecting GB to post double-digit organic for the third quarter, and we might near that for the full year. Second, on this page. As a reminder, historically, when we provided this information on this page, and we highlighted this in our calls and added footnotes, all the information historically excluded AssuredPartners. However, today, we've changed, one column now includes AssuredPartners. That is the far right column for full year '26 organic. The third quarter organic still excludes AP because third quarter '25 was a stub period. So when we report fourth quarter, we will start including AP in our fourth quarter organic, so we've updated the full year numbers for our latest estimates, including AP Finally, please also recall that these organic estimates for third quarter and full year represent the midpoint based on our best ground-up view today. Turning over to Page 5. Here, we summarize our investment income and rollover revenue. We've updated our interest income assumptions, up a few million dollars in the third and fourth quarters to reflect the recently announced 25 basis point rate increase here in the United States. Please be sure to review these estimates and reflect that in your model. Moving down, but still on Page 5, we've updated the rollover revenues for both brokerage and risk management to include acquisitions closed through yesterday. So please use these figures when updating your models. Also important to note, these amounts don't include AssuredPartners. And then at the bottom of the brokerage segment rollover revenue table, we've updated the divestitures and other row to include a couple of divested businesses. reminder that you should -- to make sure that you adjust out these divested revenues from prior year before you apply your organic growth assumptions. Next, let's flip to Page 6, AssuredPartners information. Overall, you heard Pat say that business is performing better than expected. Integration is on track, teams have come together really nicely. And the more time we spend together, the more opportunities we see. So let me hit on some modeling helpers found on this page. First, 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 small netting like we've seen in the last few quarters. So again, the footnote on this page 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 there. Third, and here's a really important heads up here. If you use this page for your rollover revenue modeling, remember third quarter was a partial quarter in '25. So incremental third quarter revenues would only be the delta between the third quarter '26 estimates in pink and the third quarter '25 numbers in blue. For revenues, that's $785 million this third quarter less $306 million in partial quarter 2025 for about $479 million of incremental rollover revenue. If you don't do that, your model will likely overstate EPS by around $0.30 per share. So please double check your models. Next on this page is to understand that you should also do the same thing for rollover EBITDAC, and then you'll need to make an estimate for synergies those synergies would be incremental to the numbers you see here. So take a look at the footnote. We continue to expect annualized run rate synergies of approximately $325 million by early '28. And even more impressive, $325 million is well above the $160 million we originally estimated when we announced the deal in December '24. And finally, before we leave this page, we're a year over -- we're a little more than a year being together with AssuredPartners. Just take a look at the right column, it's going to produce over $3 billion in revenues and well over $1 billion of EBITDAC before synergies. All metrics are coming in above our purchase pro forma and more importantly, it really shows we are truly better together. So now let's flip to Page 7, the Brokerage segment EBITDAC margin bridge. The callouts here. First, the first 3 lines you'll see on the table, I jumped out interest income we earned last year on the cash we were holding to buy AssuredPartners. Second, if you look at the second, the last line, it shows our productivity and quality efforts to deliver another year of strong underlying margin expansion. And third, when you look up above -- throughout the table, we can really see now the additional margin later getting from rolling in AP and AP synergies. The punch line is that we still have a long way -- a long runway for margin expansion from organic growth, scale advantages from M&A, use of our centers of excellence in deploying AI. Our platforms, our industrial strength and can handle billions of revenue with very little incremental cost. A few more sound bites for a second here before I close out on AI. First, I've said this before, I'm enthusiastic about the opportunity to use AI today as I was 22 years ago when first going to India, and we've hired our first 6 employees. And today, we now have more than 19,000 colleagues across a dozen lower-cost locations around the world. We now can roll out thousands and thousands of agents also. So I think you heard this afternoon from our business leader. What they're talking about has substance. More of these tools are moving out of testing into everyday work for our teams. They're improving productivity, consistency and quality across various workflows. Third, we're funding our AI evolution inside of our normal technology budget. And for the benefits come in stages. Productivity and quality come first, margins will follow, and then we should see revenue benefits through better service, stronger retention and improved win rates. And finally, the longer-term opportunity remains consistent with what we just outlined in March. Here is what we said then for those that might be new to the story. We believe the savings opportunity over the next few years could be about 5% savings in producer and field layers field sales layer cost, 10% to 15% in service layer cost savings and maybe 20% to 30% are back office cost. We expect to reinvest about 1/3 of those to support changing client needs, continued technology investment and growth. So we think that there's a good runway for future margin expansion that is achievable over the next 3 to 5 years with the pace depending on adoption and normal employee turnover. So this is real. It's underway, and we feel terrific about where we can go. Turning to Page 8, our Corporate segment. 2 callouts. First, the corporate line with the weakening U.S. dollar and unrealized FX loss of about $15 million in the quarter. That's not reflected in our numbers here. But remember, this is noncash, but it does impact EPS. So I get the lower right box gives detail on our cash taxes. At June 30, we had $628 million of tax credit carryovers, another $11 billion of tax deductible amortization expense related to our acquisition strategy that will deduct in the future, to gather those credits and amortization worth about $3.4 billion of future cash tax savings. That's a nice cash flow sweetener to fund M&A. For modeling purposes, I said this in the past, you can assume cash taxes paid of about 10% -- it will be around 10% of EBITDAC for the foreseeable future, model that and they'll get close. So moving to cash capital management and M&A funding. When I look at available cash on hand, expected free cash flows and future investment-grade borrowing we estimate close to $10 billion of capacity to fund M&A over the next 2 years before using any stock. We are a path, and Tom talked about our M&A pipeline remains strong, and we're seeing plenty of high-quality opportunities at attractive multiples, which creates immediate shareholder value through a nice arbitrage. Through the second quarter, we repurchased around $480 million of our shares. Recall, this repurchase was opportunistic, and we'll continue to watch the market, but our priorities remain unchanged. We'll continue to invest in organic growth. We'll remain active in mergers and acquisitions, pursuing M&A that is a good strategic fit, while staying disciplined in our pricing, and we'll continue to deploy excess capital in a way that maximizes long-term shareholder value. Okay. Those are my comments. Let's go to Q&A. And similar to what we did in March and June, I'm going to start off with a few questions that we've heard most often over the last several weeks, and then we'll open it up to those on the line. So Sara, why don't you take us through some Q&A.

Thanks, Doug. We've heard a number of good questions from investors over the last few weeks, and I've taken an opportunity to pull out a few and I'll move us around the table here. Mike, you're up first. July and August property trends looked a little bit better. What do you attribute that to?

Well, look, our data tells us that is really driven by business mix and seasonality. We are not seeing any fundamental change in the property rate environment.

Okay. Doug, I'm going to bring you in Investors tend to use this renewal premium change as a shortcut for organic. What are they missing?

Well, I think you heard the team say that rate really -- it does matter, but it's only one piece our exposure growth, retention, new business coverage mix fees and the mix of our business between quarters all matters too. That's why we believe GDP has historically been a better indicator of organic growth than rate alone. And remember, Gallagher is a much different company than it was in the last soft market, we have more scale, a broader mix of businesses and more ways to help clients. So we do not need rate to do all the workforce.

Okay. Patrick, what about specialty? If some business moves back into the standard market, are you still confident in the growth opportunity there?

Some of the more straightforward business may move back and forth as capacity changes, but the tough risks are only getting tougher. Think about data centers, cyber, energy, those clients need real expertise and access to markets around the world. So that plays right into our strengths and gives us plenty of room to keep growing.

And Bill will switch to benefits just for a second. Employers have dealt with rising health care costs for years now. So what feels different at this point? Where do we see opportunities?

Yes. The increases are just actually accelerating. The last few years have been really, really difficult for our clients and '27 is looking to be pretty tough as well. So employers are they're trying to take a first look at everything now pharmacy funding, plan design, and that gives us a chance to help with a more integrated combination of analytics, pharmacy and stop-loss strategy clinical cost management technology and employee navigation. So I think the clients are ready to go all in and looking at their strategies on benefits.

Great. And Scott, turn to you. and to stay on growth. Gallagher Bassett has had several strong years now of growth. Why do you think that there's still plenty of runway in the business?

Clients are asking us to do more. specifically help with more complex claims, bring better insights to decisions and improve outcomes. We have the people and the reach and build the tools and technology take on more of that work. So we're quite confident in the long-term growth prospects.

Great, Scott. So Pat, we'll pull back a little here. There's a lot more attention now on the middle market space. How do you look at that given how long we've been in this?

Well, I mean, this is our market. We've been serving the middle market for decades. We've already built local relationships. We continue to build our expertise and market access to [ slant ] for the increased attention just reinforces our strategy. It's not a change to at all, and we feel very, very good there.

Great. And Doug, I guess, does that make you think any differently about doing another large deal?

Listen, I think our bread and butter is our tuck-in M&A strategy where we team up with great families that know that they can be better together with us. So we tend to favor tuck-in. We could do a large deal, but we have to really like the business. We've got to like the people. And more importantly, you got all importantly, you got to like the price. I think there are plenty of opportunities in front of us from our tuck-in strategy. So I don't think we need to force anything. We've been doing tuck-ins for 40 years, and I think that's where our bread and butter is. But if a big along comes along, we take a look at it if it's right, fifth, we might take a run in it.

Patrick, so on that point, we've done hundreds of acquisitions over the course of Gallagher's history. So how do we add Gallagher's capabilities without changing what made those local businesses work?

I mean, these mergers, these teams, they already know their clients and they know how to win. We just want to give more markets, more expertise and more ways to help. It's just -- it's 2 and [ 2.5 ].

Okay. So Pat, let me finish with scale. Where does it help us most your Gallagher? And how do we make sure that it never actually slows us down?

Well, there's no doubt about the scale gives us a lot more expertise and more capabilities, tremendous advantage with better data and more opportunities for our people. The trick here is to keep acting the way we always have, which is to act small, stay close to the client, move quickly and never lose the entrepreneurial spirit.

Thanks, Pat, and thanks, everyone here in the room. Let's turn it over to the investors on the line. Operator?

[Operator Instructions]. Our first question comes from Gregory Peters with Raymond James.

Good afternoon, everyone. I think I'm going to start off with the question that's come in to us recently around the pressure on pricing and property. And specifically, what investors are trying to size up is how the property business looks inside of Author J. Gallagher. And what I'm talking about is by cohort of customer size, how much is in the middle market, how much is in the small market, how much is in the larger market. And related to that, I imagine the pricing pressures you're seeing vary by cohort. So if you could comment on that, that would be great.

Well, listen, I'll try to size it, and I'm pulling out some papers here now that might help with my memory. But property really represents about 30% of our commission base. When you look at it, most large property schedules are on a fee. Those are not on a commission-based product. So our fees don't move with the pricing. That's why when property was going up 20% you didn't see our organic growth in property lines going up 20% because a large portion of it is on a fee. When you then spread it between cat risk. And then what you do is you spread it between convective storm risk, that also has an impact. You heard Mike talk in particular, and Pat mentioned it too, that we just didn't see property down as much in the last 2 months, we've not seen it down as much as we did in the second quarter. That's because the mix of business is different. So the way I look at it, you probably got -- I'm just looking at the sheet here now the toll. I think we've got about 40% of our property revenues are coming from larger accounts from middle-sized accounts and about 20% is coming from small accounts. So that's kind of the difference on that. So the large probably -- the property rate probably isn't hurting it as much, and you would see that more in the middle and the small.

Excellent, that's exactly what we're talking for -- yes, that's exactly what I was looking for. I don't know if it's too early, but did you guys want to provide any preview on organic for 2027?

Yes. Listen, I think that we're right in the middle of this. We're going to be talking to you here in 6 weeks. I'd like to say that. But right now, we're not seeing a lot of difference in the third quarter versus what we saw in the fourth quarter, now we're only 2 months into it. So maybe next year feels a lot like this year. maybe that's probably a good way to start.

Fair enough. The final question I had, Doug, you were going through AI savings. I think you said 5% sales, 10% to 15% service, 20% to 30% back office, 3 to 5 years. Can you -- is there a corresponding expense associated with harvesting those sales? Give us some more detail behind that. That's my last question.

Yes. I said I think if you do that math, that might end up at 600 basis points of margin improvement. I said we'd probably give 1/3 of that back. So that would include the cost assumptions on that, too.

Our next question is from Elyse Greenspan with Wells Fargo.

My first question, I guess, will continue on the AI savings topic, right? So Doug, you said it could be 600 basis points of margin if you give a third back, right, that's 400 basis points, I think you said it's a 3- to 5-year time frame. So is it just as simple as like we're going to start seeing some of those savings in 2027, and we can think about whatever number of years or quarters and think about it falling to the bottom line? Or is there any other seasonality we need to consider when thinking about the margin savings starting to -- the AI savings starting to benefit your margins?

Yes. Listen, I don't think it's a straight line on it. So I think savings will come probably you'll start seeing more in later '27 when it really gets rolled out. We just completed several days in our third annual AI strategic planning discussions. We've got 1,000 flowers blooming. We've demoed 12 actual projects and there's 42 that are showing some real deep savings that we didn't get to and we brought dozens of people together to talk about it. This is real. It's happening. We can feel it. I think we're going to start seeing it in the numbers. If it's not '27, it certainly will be in '28.

And then I recognize right, the full year guidance right now includes AP. I don't see like the fourth quarter yet on that sheet, the organic sheet and the CFO commentary pack. But I guess the math right would imply if the first 3 quarters are 5% and the full years of 5, right, the fourth quarter is also 5%. So within that fourth quarter 5%, are you assuming core Gallagher is still at around 5% and AP is coming on? Is it 4%? Do those feel like ballpark the right numbers within your assumptions?

Yes. Listen, I think that's the historical view that we're still comfortable with saying, ever, that was the opportunity. When we looked at our sort parts, we knew that there were the cost savings on the fact is that we're seeing a much better result on that on the cost side. But we really saw a great sales organization that was running maybe a point to 2 points less in organic than what we were. And we saw that as the opportunity to bring our tools and capabilities into them, and it's starting to work. So how do I feel about the fourth quarter? Yes, they're probably running 1.5 points less than what we are. But that -- how does that impact our look on the fourth quarter, it only makes about a 20 basis or 30 basis point difference in overall organic for the year. And so that's why when you look at that, we're pretty proud of what they're posting right now to in line with our expectation. We're getting some terrific feedback and we're seeing some good client wins. So there is the opportunity to bring AssuredPartners up to our same level of organic growth throughout '27. So I think you're looking at it the right way. I don't know if I exactly answered your question, but that -- we put that into the full year numbers now so you can see the impact of the AssuredPartners. That we did not include the stub period and in the third quarter numbers.

That did answer. And then just one last one on the Q3. It's been a nonexisting hurricane season. Is better -- I'm assuming the better contingency is factored into the Q3 5%. So you're expecting -- does that translate into a significant delta between -- so all in organic in the third quarter and the base organic ex subs and contingents?

Listen, one of the things about is because of 606 accounting, we've been required to estimate what our contingent commissions have been throughout the year. So I would not say there is a -- you're going to see an upside change in estimate coming into the third quarter numbers that influences that.

Our next question is from Tracy Benguigui with Wolfe Research.

Thank you. If I look at Page 6 of your CFO commentary focused on AP, it looks like the fourth quarter AP revenue is down year-over-year. At the same time, you're including AP your full year organic revenue. Is it fair to assume that the inclusion of AHP should pressure organic revenue from here and out?

I think the issue -- remember, because we have been grossing up that we've been talking about, when you look in the past, some of the revenues were high. So really, it's more an item of the fourth quarter '25 having a gross presentation of co-broker commissions. So you can't look at you can't assume that AssuredPartners is going backwards in the fourth quarter because of that accounting as we roll those on to our system, we moved that accounting to a netting presentation that we do. So you cannot just do that completely. Conclusion is they're going to grow somewhere around 3% to 4% in the fourth quarter organically.

Got it. And then on the topic of M&A, Doug, you mentioned you prefer tuck-ins. But to do a large transformational M&A, you have to like the price. Is there a ceiling multiple you have in mind?

Well, listen, I think we kind of like what we paid for AssuredPartners. After the time it was $12.5 billion. And right now, you look -- you'd stay on Page 6, that business without synergies is running $1.57 billion in EBITDAC, plus you put on $325 million synergy savings. We like that price. Others have paid more. I think it's probably -- they're thinking about is more transformative for them. We're in the middle market. We don't have to pay that adult to get into the middle market. So we would look at -- I kind of like the pricing that we saw on AssuredPartners.

Even with -- even with the size of AssuredPartners. I would say that as Doug's point is right on. That's not transformed. We added 300, 400 branches that are doing exactly what Gallagher was doing before. The fit between the people and the operations is incredible. And it's like we did the 300 deals they did on a period of time that they did. They fit with us. As you might recall, 96% of those, we didn't even get a chance at. And I've now been able to meet almost all those people I wish we bought them one at a time. That's where we're good at.

Our next question is from Mark Hughes with Truist Securities.

Yes. Doug, when we think about the corporate segment last year, any early vie on that, what the corporate segment loss might be?

For next year, Mark, is that what you're asking, '27?