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

Good afternoon, and welcome to Arthur J. Gallagher & Co's. Third 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 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.

Thank you. Good afternoon. Thank you for joining us for our third quarter '26 earnings call. On the call today is Doug Howell, our CFO; and other members of our management team. We had an outstanding third quarter. Our team delivered strong revenue growth and excellent profitability. For our combined Brokerage and Risk Management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions delivering total revenue growth of 18% in the third quarter. Organic growth was also strong at 5%, reflecting excellent new business, strong retention, positive exposure growth and the diversity of our business. We continue to generate outstanding profits. Net earnings grew 25%, and adjusted EBITDAC also grew 25%. That marks 26 consecutive quarters of double-digit adjusted EBITDAC growth, along with another quarter of margin expansion. Doug will break that down for you in a few minutes. On a segment basis, brokerage revenues were up 19%, of which organic was 5%. We saw excellent growth across our retail PC, wholesale and reinsurance businesses. We're now more than a year into the AssuredPartners combination. The business is living up to our high expectations. Client retention remains strong, and the teams are working very well together. Our Risk Management segment, Gallagher Bassett, posted revenue growth of 14%, which includes organic of 10% driven by excellent new business and strong client retention. Our consistent top and bottom line growth is driven by the 4 strategic pillars that have guided Gallagher for decades, growing organically, growing through M&A, improving our productivity and quality and maintaining our culture, I'll comment on each of these. First, organic growth. We have a diversified revenue model, but common across that our client retention remains strong, new business is excellent, and our clients' underlying business activity continues to be positive. It is well known that insurance rates are currently contributing less to growth than they have over the past several years. [indiscernible] about 1 point of organic growth today is tied to rates. This reinforces that rates are just 1 part of the equation. The bigger drivers of organic growth continue to be new business, strong retention, exposure growth as well as the diversity of our model across PC, benefits, reinsurance and claims. So this shows our business performs well through a wide range of economic interest rates and insurance price environments. And we believe our diversified model and breadth of capabilities position us well to continue growing as the market conditions evolve. We're also benefiting from favorable macro tailwinds. The need for insurance is growing around the world and risks are becoming more complex, thus requiring broader capabilities and more sophisticated solutions. Think about construction, infrastructure, energy and data centers as well as the growing need for clients to understand, mitigate and ensure emerging risks from AI, just to name a few examples. These are the areas where clients need more advice and deeper expertise that plays directly to Gallagher's advisory strength and creates a tailwind for durable organic growth. Let me go back to rates for a few minutes. Overall, we continue to see a very segmented PC market, properties competitive, casualty varies considerably by line and account and there's plenty of capacity looking for attractive risks. Carriers want to grow, but they still need to write risks at the right returns. And for us, that creates opportunities to help clients navigate more choices and find the right solutions. Let me break this down by business, I'll start with our global retail PC business. Property remains competitive with renewal premiums declining 6% compared with down 10% in the second quarter. As we discussed in September, that sequential improvement, largely reflects the mix of seasonality of renewals rather than a change in the underlying property market. However, casualty remained firmer overall. Even with competition slightly increasing, conditions still vary considerably by line, account and geography. In the third quarter, casualty renewal premiums, which includes general liability, commercial, auto and umbrella, were up 4% overall. Professional lines, including D&O and cyber were up 2%. Workers' comp was up 1%, personal Lines was up 3% and package was also up 3%. Excluding property, renewal premium changes increased 3% in the third quarter, with higher increases in the U.S. versus international markets. And it's important to remember, premium changes in Gallagher's revenues do not move one for one. Renewal premium changes include exposures, changes in limits, coverage and mix, not just rate. In other words, as property pricing eases, we're seeing clients opting in and using the savings to buy back coverage, increase limits or improved structure after several years of opting out than making difficult trade-offs. They're also revisiting how much risk they retain with the transfer and how they structure their overall programs, and that makes the value of our advice, advocacy and market access even more important. In the U.S. excess and surplus property remains very competitive, particularly cat-exposed property. But lower pricing doesn't necessarily mean the business leaves E&S. Rates are clearly down. But for us, our teams continue to win new business, helping to offset rate decline. Within casualty, capacity is increasing, the loss costs remain an important consideration. So conditions vary by line and risk. In this case, we continue to see tailwinds -- rate tailwinds and strong growth in casualty. In our renewal book, we are not seeing any meaningful movement back to the admitted market. And we're seeing new business still using the E&S market at levels broadly consistent with what we saw over the last couple of years. This shows that it's a different marketplace today. For us, the E&S market is here to stay, provides important capacity and deep expertise with flexibility on terms and creative structures. All that is critical to delivering customized solutions to our customers. We're seeing a similar story in London Specialty. Competitive North American cat property has been more than offset by certain marine, aviation and political violence risks. These risks remain more challenging, and they require careful structure and coordinated execution across markets. In reinsurance, the market has plenty of capacity. Property cat pricing remains competitive, while casualty is more nuanced to the loss cost trends. Reinsurance is another example where price is only one part of the story. New business, the amount of protection clients buy and how they structure their programs all matter. Our expert capabilities across faculty casualty, life and capital advisory give Gallagher Re multiple ways to grow. Moving to Employee Benefits. We've seen solid organic growth in our core health and welfare business so far this year. But in the third quarter, however, a few larger consulting projects were pushed out as clients focused on controlling rapidly rising medical and prescription costs. Employers still want competitive benefits to attract and retain people. But managing those rapidly rising costs is the immediate priority. And that's where our people really help, working side-by-side with clients to manage costs and keep their benefits competitive. Let me turn to Gallagher Basset. It was another terrific quarter with organic growth of 10%, driven by excellent new business and strong client retention. Our investments in GB are paying off in both growth and margins. Clients are benefiting from our expanded capabilities, deeper data and more robust technology. And each of these improves our advice and service and helps drive better claim outcomes. Those investments, together with the depth and experience of our people, continue to strengthen GB's competitive position. With a good pipeline of opportunities, we feel terrific about where the business is positioned. Now a quick comment on what we're seeing in the economy. Our daily revenue indications from our clients' underlying insurance activity such as audits, endorsements and cancellations, have historically given us a good and practically real-time window into broader economic conditions. When I look at yesterday's report, those indicators continue to be nicely positive, pointing to solid business activity and steady underlying exposure growth. So to wrap up my thoughts on organic growth, property pricing moderating and that's well understood. The property is only one part of our very large and very diverse business. The tension remains strong. The business is excellent and client activity continues to be positive. And as pricing changes, clients are buying more coverage, increasing limits, lowering deductibles and turning to us for advice on how to structure their risk programs. Those are bigger drivers of organic growth even as pricing continues to change. We also have a very diverses. Our growth is not tied to 1 product, 1 geography or 1 client segment, and we have many ways to grow across BC, benefits, reinsurance and claims. We are large, and we still have had very little market share. And we operate in an industry where demand for advice expertise and risk solutions continues to expand. And I look forward, I remain confident in our 2026 full year organic growth outlook of approximately 6% for our combined Brokerage and Risk Management segments. And looking to 2027, we see many of the same drivers. Strong new business, excellent client retention, positive exposure growth and our diversified business mix, those support another year of strong organic growth. Now shifting to our second strategic pillar, mergers and acquisitions. We continue to see good opportunities. And as always, we're staying disciplined on strategic fit, culture valuation and returns. During the third quarter, we completed 5 new tuck-in acquisitions, representing approximately $100 million of estimated annualized revenue. That brings us to 21 so far this year with approximately $225 million of estimated annualized revenue. Our pipeline remains active with over 30 term sheets signed or being prepared, representing around $300 million of annualized revenue. And these mergers continue to add terrific people and capabilities across our businesses and geographies. AssuredPartners, Woodruff Sawyer and dozens of others that have joined us are great examples of that strategy at work. We're connecting teams, sharing capabilities and bringing Gallagher's tools, Data and expertise across the combined team. And in turn, these mergers accelerate our opportunities for future organic growth as we become better together. To all of our new merger partners, I'd like to extend a very warm welcome to the Gallagher family of performance. Turning to our third strategic pillar, continuously improving our productivity and quality. For more than 2 decades, we've been focused on improving productivity and quality through standardized workflows and a common data and digital strategy across the company and building out our centers of excellence. And today, our centers of excellence are 20,000 colleagues strong, and our goal has remained the same, reduce repaint work, improve quality and give our people more time to serve and advise clients. AI and automation helps to accelerate that journey and helps us capitalize on our scale. We're continuing to invest where it strengthens client service and growth while improving efficiency and margins over time. Let me wrap up with our fourth strategic pillar, our culture. We're a team-first company, our people helping to share their expertise and work together to do the right thing for our clients. That's what makes Gallagher special. As we grow, that matters even more, bringing new colleagues into Gallagher, giving them more people, more expertise and more capabilities to help their clients and win new business. The 25 tenets of the Gallagher Way guide how we work and how we treat 1 another. It's about serving our clients, supporting each other and growing together. That's the Gallagher Way. So another outstanding quarter behind us. strategy is working, our team is executing and the opportunities ahead of Gallagher have never been greater. I'll stop now. I'll turn it over to Doug to walk through the financial details. Doug?

Thanks, Pat, and hello, everyone. We had a fantastic quarter. Nearly every metric was at or better than the outlook we provided at our September Investor Day. Incredible total revenue growth, strong organic growth, excellent margin expansion and terrific earnings growth. So let's go to Page 1 of the earnings release. Our 2-pronged revenue growth strategy continued to deliver. When you do the math, you'll see our combined Brokerage and Risk Management segments posted adjusted revenue growth of 17%, adjusted EBITDA growth of 25% and adjusted EPS growth of 26%. Then it gets even better when you levelize to remove the $76 million of interest income we earned in the third quarter '25 on the funds we are holding to buy AssuredPartners. On that basis, adjusted revenues were up 20%. Adjusted EBITDA grew 34%, adjusted EPS grew 37% and adjusted EBITDA per share grew 35%. Like I said earlier, in a word, it's incredible. Flipping to Page 2. Again, levelizing for the interest income earned on the fund held to buy AP for our combined Brokerage Risk Management segment's 9-month adjusted revenues were up 27%. Adjustment EBITDAC grew 32%, adjusted EPS grew 34% and adjusted EBITDAC per share grew 33%. So the strength we've seen isn't just a 1-quarter story, I'll call it a fantastic 9 months, too. So let's move to Page 3. Brokerage organic growth was up 5% in the third quarter, right in line with our September IR day forecast and a strong result in a competitive pricing environment. We posted solid organic growth in our base commissions and fees, plus another strong quarter of combined supplemental and contingent revenue growth. Moving to the brokerage margin table at the top of Page 5. Our adjusted EBITDAC margin was 35.3% in the third quarter. At the upper end of the range we noted on our September IR Day. Headline margin expansion of 200 basis points and the underlying expansion story is really terrific. I'll unpack that a little bit more when we get to Page 7 of the CFO commentary document. So let's move now to the bottom of Page 5. Risk Management organic growth was 10% in the third quarter, again, right in line with our September IR Day forecast. It's another excellent quarter, reflecting strong new business, excellent client retention and continued momentum across Gallagher Bassett. When you flip over to Page 6, Risk Management third quarter adjusted EBITDAC grew 17% with margin landing at 22.8%, up 90 basis points over last year that reflects strong organic growth and continued operating efficiencies. Looking ahead, we see fourth quarter and full year '26 adjusted EBITDAC margin again, north of 22%. That would cap off another very strong year for Gallagher Bassett. Flipping now to the Corporate segment on Page 7. Not really much here. Adjusted corporate results were a bit better than our September Investor Day outlook, but that's primarily because of the noncash unrealized FX loss came in smaller than estimated. When you turn to Page 7, about halfway down, you'll read that we repurchased about 400,000 shares for approximately $100 million in the third quarter. That brings repurchases to about $580 million through September 30. Okay. Let's leave the earnings release and turn to the CFO commentary document. This document includes details that can meaningfully affect your models. So I'd encourage you to give it a careful luck. Starting on Page 3. Most third quarter items came in very close to what we provided in September. As you model the fourth quarter, please consider the FX impact and noncash expenses as these have been updated to reflect the latest exchange rates. Turning to Page 4, a few business level organic growth highlights than the outlook. Third quarter brokerage organic was 5% meeting our September midpoint estimate. And a few business level callouts. Reinsurance growth was 7%, reflecting another quarter of strong new business and retention more than overcoming the competitive pricing environment. Our U.K. and EMEA businesses had a great quarter, which was somewhat benefited from more risk premiums. Benefits did come in a bit below our September forecast. Most of that reflects a contingent commission true-up and the timing of several consulting projects that I mentioned earlier and admittedly, a little relates to some rounding in the percentages. Underlying core health and welfare growth remained solid and in line with our expectations. And then again, you'll see on this page, another outstanding quarter for Gallagher Bassett's third quarter coming in at 10% organic growth. So moving right on this page, our outlook. We continue to see fourth quarter and full year '26 brokerage organic growth of around 5%. And it's worth a quick reminder of what we discussed in September at our IR Day. Fourth quarter brokerage organic will include AP for the first time. The math behind that inclusion gives you roughly only 20 to 25 basis points of headwind. So that's another really good story here. And our early view of '27 is also encouraging. Our early planning indicates legacy brokerage organic growth could look a lot like '26. And it's also indicating that our early successes of being better together, the roll-in of AP is looking like maybe only impacting that by about 40 to 50 basis points for the full year '27. And as I provide all this information, please know we're assuming broadly similar conditions -- or market conditions in '27 as we saw in '26. And then one other soundbite here: Improving AP, AssuredPartners, base organic growth was not and is still not included in our synergy assumptions. So progress towards Gallagher growth levels over the coming year to 2 years would represent additional upside. Moving down on a few lines of the Risk Management segment. You'll see our outlook remains strong. A 9% organic year would be another impressive result for Gallagher Bassett and reflects the momentum from our continued investments in the business. As for '27, look at the pipeline suggest momentum should continue. So '27 also could look a lot like this year for Gallagher Bassett. Moving to the investment income table at the top of Page 5. Our fourth quarter investment income estimates reflect current exchange rates, estimated fiduciary cash balances and the September rate increase. And staying on this page, but shifting down to the rollover revenue table. Third quarter rollover revenues came in pretty close to our estimates provided in September. For the fourth quarter, acquisitions closed through yesterday could add about $65 million to brokerage revenue and about $5 million to risk management revenues. We also need to make a pick for future M&A. However, realize we're already well into the quarter. So practically speaking, that fourth quarter number shouldn't meaningfully increase all that much. This seems to be another place for the closer look in your models. And finally, as a reminder, 5th line up from the bottom, please remember to adjust the prior year revenue base for this divestiture and other line before applying your fourth quarter organic growth assumption. Let's turn over to talk about AssuredPartners on Page 6. We discussed in our last few Investor Days that integration is progressing very well. So there's no need to repeat today. other than to add that all back office systems are integrated and up and running by year-end, close to half of AP's revenues will be up and running on their designated agency management system. That's great work by the team. So just a few call-outs from this page. AP did deliver $285 million of adjusted EBITDAC in the quarter. That's right in line with our September estimate. We remain on track for $160 million of annualized run rate synergies by year-end '26 and that goes up to $325 million by early 2028. And just 1 modeling helper here. When I get to Page 7 in a second, we give you our estimated fourth quarter margin expansion from AP synergies. So don't again add synergies from this page. If you do that, you'll double count. So let's go now to Page 7. This really shows the power of our model when it comes to our margins. First, underlying brokerage margins expanded 60 basis points in the quarter. That's at the top end of our September range. That's our vigilant work on process standardization, great use of our centers of excellence, deploying technology and other productivity initiatives, all continuing to show up in our underlying results practically every quarter for the last 5 or more years. Second, AP added another 310 points of margin lift in the quarter. First line shows 220 basis points related to AP pre-synergies understand that 180 basis points of that relates to having full quarter of AP this year versus only a partial quarter of last year third quarter. Then the next line shows another 90 basis points came from synergies. That's the integration work now showing up in our results. And there's more ahead. As we look out to '27, we see strong margin momentum and multiple levers to drive further improvement. Additional AP synergies, greater reuse of our lower cost centers of excellence and continued technology and productivity initiatives. So we're not just a revenue growth story, we're also a profitability growth story too. Let's move to Page 8 to our corporate segment. Our fourth quarter outlook is very close to what we presented in September, and you'll see again in the right lower box, it's just a reminder that we have $3.4 billion of future tax savings from tax credits and tax deductible intangible amortization. That shows up in our cash flow statement rather than in the P&L. So for modeling, set your cash taxes paid at about 10% of EBITDAC, and that should get you close. And remember, those tax benefits give us more cash to put to work. Combined with cash on hand, expected free cash flow and future investment-grade borrowing. We estimate more than $12 billion of acquisition capacity to deploy over the next 2 years. That's substantial capacity to continue executing our M&A strategy. Our pipeline remains strong. We stay disciplined on fit and price. We continue to favor M&A, but we'll continue to repurchase shares opportunistically. So another great quarter across the businesses were on track for a terrific full year. We're growing organically executing on a strong M&A pipeline. Expanding margins, realizing the benefits of AP and deploying our capital to create long-term shareholder value. We have good momentum heading into '27, and we're very excited about what's ahead. So those are my comments. Back to you, Pat.

Thanks, Doug. Sure, I think we're ready for some questions and answers.

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

My first question, Pat, you said that you guys are generating, I think, around 1% organic and brokerage from the rating environment right now, right? When you think about 2027 and the pricing environment like getting more competitive, when you guys say that you're looking for kind of a similar level of brokerage organic growth next year, are you assuming that 1% persists? Or are you assuming maybe a little bit of a slowdown and then you get some additional contribution from some of the other factors that you mentioned new business retention exposure, et cetera?

No, I think the 1% will be consistent.

Okay. And then my second question is on margin for next year, right? As we think about just synergies from AP coming on, right, kind of organic growth, what seems like it might be within range of 5%, maybe a little bit of a headwind from AP brings that down a little bit. But how are you thinking about just the level of margin improvement that you guys could see next year? Is it back to like baseline, Doug? And then put the synergies in on top, so like 50 basis points on organic and then synergies? Or how should we be thinking about that for 2027 for brokerage?

So I don't see it any different than we talked about before. I see margin expansion starting around that 4% range. And if so we're at 5%, you might see 50 to 75 basis points of expansion, and then you would get more synergies coming out of AP. We also have AI starting to use. We also have other technologies. We're continuing to use our offshore centers of excellence. So I feel pretty good about next year, kind of looking like this year.

Our next question is from Mark Hughes with Truist Securities.

Yes. Thank you very much. Doug, the divestitures, the $73 million in the quarter, was that -- or what you expect for the fourth quarter, I'm sorry. Is that a little elevated? Or is that kind of something we should think about for a run rate?

Yes. Good catch on that, Mark. I probably should have baked that into my script. So this is a modeling helper that really helps you reset your baseline for last year. So let me break that down just from memory or a second. The easiest component to understand is we removed from last year in that number, what we sold and is what is in runoff. Yes, it is a bit higher in the fourth quarter than we're showing here because when we bought AP, some of their business was already in runoff. And you know that from time to time, we also sell or run off some units too. Generally, that creates a book gain that we adjust out. We don't include that in our organic. So maybe in that $73 million, there's call it, $25 million of runoff. And again, I'm going a little bit from memory here of runoff and sold businesses. Then we also put in this line that kind of the impact of 606 accounting in the prior year quarter. We don't have as much of that in Q4 '25. Maybe that was $15 million to $20 million of that number. And we shouldn't be applying organic growth to nonrecurring accounting adjustments. We put that in that line. We do also put the large life, that's actually performing pretty well this year, but I think maybe in the fourth quarter last year, we had $10 million or $15 million of that. We've actually had a pretty good year on that in that business, particularly earlier in the year. But again, in order to level set your baseline for next year to apply organic growth, you need to kind of factor that out in terms of doing that. And then, of course, what we've been talking about, if I remember the fourth component of this is that when we convert onto our AP systems, we're getting more granular around gross revenues and co-brokerage amounts that are netted against each other. So for apples-to-apples, there's an adjustment down in that number. It's not a big item. I think it's around $10 million. So you're right to highlight, I mentioned that in my script, but those are kind of the 4 components that, that come to mind that add up to that $73 million.

Okay. I appreciate that. And then anything on commission rates in the software market as everybody -- carriers are competing for premium. Is that good for you all?

Well, listen, I think our supplementals and contingents are showing that carriers value the volume and the good business that we give them. So we're not seeing compression in our base rates at all.

Yes, about underlying commissions, so my thought was maybe they're going up a little bit?

No. We try hard at that, but right now we're okay.

Commission rates are pretty steady. And what we do try to do is talk to customers about why we should take a pay cut and basically say, because we're very transparent on every dollar we make, we did a good job for you. Last year, we had $10,000. If we stick with this, we're going to make $8,000, we'd like to put a fee on it, and we sell that to some degree, but it's not across the board.

Our next question is from Dean Criscitiello with Wolfe Research.

When you guys announced the AP deal, you said there would be $160 million in run rate synergies with $60 million or a bit more than 1/3 of that coming from revenue. Now your guidance today is for $325 million of run rate synergies, but I don't think you split out the revenue and cost of that, so sort of hoping for an update on there. And then you guys sounding kind of bullish on some upside from the $325 million. So just curious what would get you to upside from that.

All right. Let's work backwards. Just remember, when we bought, we bought a really nice growing business in AssuredPartners, but it was running 1 point to 1.5 points less than like-for-like business inside of Gallagher. And there in lies some of the -- a big opportunity as the producer -- the great producers inside of AP, get our tools and capability over a 1- to 3-year period, you should -- our goal is to get that up, so that's performing at the same level as the producers inside of Gallagher overall. All right. We're on track for that. We also know that we can get some enhanced compensation as we start using AP distribution force. It gives a great opportunity for our wholesalers and our binding and our programs folks to start calling on those folks all pick up some there. But by and large, the revenue that we're talking about is the same in the $325 million number. as it was when we did the secondary offering. We have not throttled revenue to get to that number. It's mostly in the expense line.

Got it. That's helpful. And then last 4Q, I know your organic, you had headwinds from like the large life sales and the deferred revenue assumption changes. And I know that's not in your guidance for this year, but curious if you expect that to be a tailwind to the reported organic number in 4Q.

Well, no, it's not in our organic anymore the way we report it. I don't believe there's going to be a significant change in that accrual number when we come into the year-end. I'll have an update on that, we update most of our 606 factors here basically beginning now. So when we get together, our December IR day, I'll be able to give you the impact of that it shouldn't influence at all anything that you're seeing on Page 4 in our organic growth numbers.

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

Maybe just a quick clarification on the organic growth outlook for brokerage. I think, Doug, you said that 40 to 50 basis point impact for next year. Is that -- should we be since we're going to be including AP in the full year next year, are we saying -- you're thinking it's the same as [ '26 on legacy ] but then be minus 40 to 50 basis points to take into account AP.

That's what I'm saying as we go into the year. I think that the -- that would be the level of a little bit of headwind. If AP continues to run in that point have difference in organic than us, that would mathematically produce about a 40 to 50 basis point headwind in total Gallagher organic growth next year. I would say it's almost a rounding when you get down to it.

And not to belabor, but AP has only been part of you guys for a short period of time. But would that be coming with APs lower organic after a year or so of being with you all, it's not really part of -- it's not fully integrated. So there are new businesses running kind of below the what you all like to see also are able to do? Or is there another component?

That's exactly right. And typically, when we do acquisitions like this, those people with our tools our capabilities and our vertical or niche capabilities, in particular, see a nice lift. And I think that they're slightly behind us inorganic, and I think we will see a pickup. They're very -- they're coming on to the tools and the capabilities as well as working together. We keep talking about we're better together. Well, we're seeing that over and over. We're not going to sit here and give you a list of new production for the month for the year, but it's very strong, and it's really exciting. I think that to me is 1 of the most exciting things about the whole deal because we are selling a lot of stuff together. .

Yes. If you think about like timing wise, we didn't close until August by the time that came up very quickly for us because we actually did push through the segment request very quickly. So we get it done. -- we get into the fall and start doing the hearts and minds campaign. That stretches into January and February. We have our sales conferences where we continue to roll out more tools. The tools are on their desk, but using that -- the way I look at it from the CFO's desk, we really only had the sales excitement going on for about 8 -- 7 or 8 months. And if you think about P&C business being and a bit of it being kind of an 18-month sales cycle, I think that we're just coming into our own on that. So I think the '27 and '28 those are the test years to basically take these tools and bring them up to our level. So very excited about where we are right now, but understanding how this -- this isn't a call center type operation, where you increase advertising today and sales come in tomorrow. So takes a while, but we are getting really great feedback from the field on how these tools and capabilities can make them better. And that's what we saw in the other 1,000 acquisitions that we've done over the last 20 years, too. It takes a while, they'll learn it, get it up and running and then leverage it.

Got it. And just really quickly, reinsurance, you guys continue to take market share, a great story there. Just you guys probably -- your outlook is probably more bottom-up and top-down. But top-down levels if we were to say that the reinsurance -- the overall reinsurance marketplace was going to grow by 2 to 3 points less year-on-year, '27 versus '26. Does that do you think that, that would be taken into account in terms of your thought process on reinsurance next year? Or you guys don't think about it that way. .

We don't think about it that way. I think 1 of the things about reinsurance is very chunky. So these are big deals and they have a life of their own, and our team is very, very good. So we feel good about next year. .

Our next question is from Andrew Kligerman with TD Cowen.

This is a basic question, but it's important because I've been getting the question from investors, particularly newer ones. And it's a question about differentiation. As I see a number of your competitors, both private and public, starting to stumble in organic growth. And yet I look at Gallagher and year-to-date, it's just, in brokerage, 5%, 5%, 5%, just solid all the way across. And I know on this call, you've touched on a bunch of stuff. Doug just said a word tools and capabilities Pat, you were talking about productivity and quality with the digital and the center for excellent then you rounded it out with culture. But I hear that same kind of commentary from your competitors. -- maybe there's something even more tangible that you could give me here when I get that question because I've been getting it quite a bit amidst the softening market.

All right. I'll go out on a limb on this one, Andrew, I think that the differentiation is in the culture. I mean I think there's -- I'm the one guy that's just -- they don't [indiscernible] but at 600 interims last summer. I don't know what the industry is doing, but nobody is even coming close to that. Year in year out, bringing 600 people. We have young people in to learn about our business. We don't hire them all. We get a good percentage of the ones we want, and they're damn good. I mean this idea that the younger generation can't make, they always need a trophy. That's just not even close. So that starts with that. ripples through the whole organization. We are focus at our heart. We love to sell insurance, everyone at this table today, would jump on an airplane a mile to go sell an account. We know what we're talking about when it comes to that stuff. We leave our global capabilities, and this team works together. So I think it's just one of those things that we are very sales oriented, we're working hard to keep our -- we're working out to keep the pipeline up. We understand the sales gain. We're not overcomplicating it. If you don't get in front of people, you don't make sales. We get in front of people and you've got a good story to tell about how you can actually help them then you have a better than it's on chance. And I'll tell you our pools, when I started a long time ago, our hit ratio was probably high 20s, low 30s on our opportunities we went out [indiscernible] propose. And I'd say, 10 years ago, that was probably the same, too. our tools today, we have empirical evidence that if you'll use the tools, those hit ratios are moving over 40% and up towards 50%. That just tells you the power of the tools combined with the power of the structure. And by that, I mean our vertical capabilities and then the culture to work to. I haven't had to get involved commission split argument in over 10 years. They're just worse. And guess what? We have fun doing it.

Got it. So the 8 plus team and the major leagues, I would like to know about M&A as my second question. You talked about a $300 million pipeline. And I'd like you to square it with what I've been hearing this M&A in the brokerage area is starting to slow down?

Yes. I think it is starting to slow down. And frankly, that $300 million is probably off with the numbers that we've told you in past years. The fact is you've got a group of entrepreneurs out there that don't have to sell. They do a very good job of making money for their family. We don't need to have a $100 million agency to do that. Clearly, multiples are down. pressure on revenues. People aren't necessarily. There's not as much demand for those properties. And I think that there's just a typical well. Now if the tax law begins to look like it might change, if in fact, the aging population realizes that they've got to do something for their people and to capitalize their asset, we'll be back into what we saw in 2006, '07, '08, '09, '10, with people. We're out there helping them from the grips with the fact that this isn't going to change back to the '18, '19 multiples overnight. We're not going to be able to babysit this thing and then end up getting the growth that you want. Let's get together and build it together. That going to take some time. Now at the same time, there are still lots of opportunities. When we did the Assure Partners deal, there were about 300-or-more acquisitions they did. You recall that we had looked at 6% of them. 94%, we never got to call the race. One year, 15 months after the acquisition, I have met thousands of their people, not hundreds, thousands, and I'm telling you they all fit in this organization. It's incredible. And they're salespeople, they love taking care of their clients. We would have done those deals. We just have to be better at getting out and telling our story. And I think when we do that, we compete very, very well.

Our next question is from Greg Peters with Raymond James.

At every quarter and every management meeting, you gave us an update on endorsements and audit is sort of an indicator of what the underlying health of the businesses your clients look like. Could you spend a second and just give us -- I think you said nicely positive for what you're seeing most recently. Can you give us a sort of snapshot of how that's trended this year versus last year? Is it keeping pace? Is it down a little bit? Is it up a little bit? Just sort of the cadence of what's going on there?

Doug's got the sheetin front of him. I'll let him take it. .