Arthur J. Gallagher & Company (AJG) — Q2 2020 Earnings Call Transcript

Thank you. Good afternoon. Thank you for joining us for our second quarter 2020 earnings call. Also on the call today is Doug Howell, our CFO, as well as the heads of our operating divisions. We delivered an excellent second quarter. Despite the economic deterioration caused by COVID-19, our teams are executing at the highest levels while we continue to place health and safety first. We are servicing our clients. We're selling new business. We continue to look at merger and acquisition opportunities, and our bedrock culture keeps our teams working together even while physically apart. I would like to thank our 33,000 Gallagher professionals around the globe for their constant and tireless focus on delivering the very best insurance brokerage, consulting, and risk management services to our customers. More than ever, these are times when our global capabilities and resources support our local professionals as they help our customers navigate these challenging times and still generate strong new business. That really truly is the Gallagher way. Moving to our second quarter financial performance. We grew our combined Brokerage and Risk Management revenues in the second quarter organically and through mergers and acquisitions. Together with our expense control actions, we delivered excellent growth in EBITDAC and net earnings. This demonstrates that our investments over the last decade have enabled us to quickly adjust our workforce and expense base, increase the utilization of our centers of excellence, efficiently work remotely, improve our productivity while always raising our quality. Let me break down our results further, starting with our Brokerage segment. Reported revenue growth was a positive 6.2%, and even a bit better at 7.6% when adjusting for foreign exchange. Of that, 2.1% was organic revenue growth. Net earnings margin was up 364 basis points, and adjusted EBITDAC margin expanded by 635 basis points to 32.6%. Doug will provide some additional details on our expense control efforts, which were primarily responsible as we drove net earnings up 38% and adjusted EBITDAC up 34%. Clearly, a very strong quarter and a testament to the team's execution in a difficult environment. Let me give you some sound bites about each of our brokerage units around the world. Starting in the U.S., our retail P&C business held up very well during the quarter, delivering organic growth of about 4%. There was still strong new business generation, a small drop in retention, and nonrecurring business; rate increases offset exposure unit declines; cancellations were not up over first quarter levels, and midterm policy modifications were still a net positive, but a bit lower than first quarter levels. Overall, we are seeing similar trends in our domestic wholesale operations, but a bit of a tale of two cities. Our open brokerage business had mid-teens organic growth benefiting from strong new business and rate. Our MGA program binding businesses were down about 5%, resulting from a slowdown in programs like transportation, amateur sports, and construction. However, when we look at June alone, our MGA and program businesses were showing improvement over the lower activity seen in April and May. We had an excellent quarter in Canada at more than 5% organic driven by strong new business and higher rates. The U.K. delivered 4% organic, and Australia and New Zealand were closer to flat, where we are not seeing as much tailwind from rate. Overall, our global PC operations reported about 4% organic growth in the quarter, which was a really strong result in a difficult environment. Moving to our benefits business. As anticipated, we saw some second quarter weakness, down about 3% on an organic basis. New consulting and special project work declined, in addition to a decrease in covered lives on renewal business, but we are not seeing covered lives decreasing as much as the headline unemployment numbers. So when I combine our PC and benefits together, the 2.1% organic growth in the second quarter came in pretty close to where we thought it would be at our June Investor Day. Looking forward, so far in July, nearly every metric we are monitoring is trending better than the second quarter. Accordingly, based on what we're seeing today, we think third quarter brokerage organic and expense savings will be similar to the second quarter. As we move into the fourth quarter, if the economy continues to recover, we feel that organic growth would equal or even be a bit better than the third quarter, and we should be able to continue to deliver cost containment as well. Still a lot of economic and governmental uncertainty, but that is where we are forecasting today. Before I leave the Brokerage segment, let me go a bit deeper on the PC pricing environment. PC pricing continued to move higher around the globe, with most geographies reporting 5% or greater price increases, tighter terms and conditions, and somewhat restrained capacity. By line of business, property remains the strongest, up more than 10%. Next is professional liability, up over 7%. Other casualty lines are up 5% to 10%, with umbrella rate increases at least twice that level, and workers' comp is flat to down 2%. By geography, Canada is seeing the greatest price increases, up more than 8%. The U.S. is up about 7%, followed by the U.K., including London Specialty at about 6% and Australia and New Zealand between 2% and 3%. So PC pricing is up across the board, but client premium changes are more modest due to lower exposure units, higher deductibles, reduced limits, and clients opting out of coverages. Looking forward, I see rates continuing to increase within an already firm market, and early indications from July point to continued increases in the third quarter. Before the pandemic began, loss costs were outpacing rate, and I see just as strong a case for underwriters to push for even more rate in this environment. It is certainly a more difficult market today, but not yet a hard market because most risks can still find a home. Jumping to mergers and acquisitions, we completed 4 brokerage mergers during the second quarter at fair multiples. I'd like to thank all of our new partners for joining us, and I extend a very warm welcome to our growing Gallagher family of professionals. While second quarter mergers were lower than normal, the number of conversations with potential merger partners is picking up so far in the third quarter. Difficult market conditions and the pandemic are further highlighting the need for expertise and data-driven tools. Our platform is an excellent fit for entrepreneurs looking to support their current clients, use our tools and data to grow their businesses, and advance their employees' careers. As I look at our M&A pipeline, we have about 40 term sheets signed or being prepared, representing around $300 million of revenue. Based on the activity we are experiencing in July, we are optimistic we will return to more normal levels of merger activity later this year. Next, I'd like to move to our risk management segment. Second quarter revenue was in line with the guidance we provided at our June IR Day, with reported revenues down about 8.8% and organic down about 9.6%. This reflects a dramatic pullback in new claims arising due to higher unemployment and a reduction in overall business activity, offset somewhat by an increase in COVID-related claims. We think April was the worst of it, and I'm encouraged that claim counts in the latter half of the quarter and into July improved off the lows. However, new claims arising are still well below pre-COVID levels. Our risk management team also did a terrific job on cost containment. Adjusted EBITDAC was only $2.7 million lower in the quarter relative to last year, and margins held, which is also right in line with our expectation. It takes a little longer to turn this ship compared to our Brokerage segment. We expect to see third quarter EBITDAC improve relative to the second quarter, and then as our expense actions are fully realized, we anticipate even greater improvement in the fourth quarter, leading to full year adjusted EBITDAC at least equal to 2019. That's a fantastic job by the team to adjust our expense base and rebalance claim loads across adjusters while maintaining our client service and quality levels. So when I combine our core Brokerage and Risk Management segments together, despite the unprecedented economic challenges, we grew our adjusted revenues 5.3% and grew our net earnings and adjusted EBITDAC about 30%. That's truly an excellent quarter. But before I turn it over to Doug, let me finish with some comments on our bedrock culture. When times are tough, teams can either break apart or band together. Since my grandfather started the company in 1927, we have consistently expected every leader in association with Gallagher to live our culture, talk about our culture, and promote our culture. Culture matters. Culture prevails. Culture is important in the best of times, but even more important during challenging times. Our team is together. We respect and support one another. No one is an island. There are no second-class citizens. We learn from each other. Everyone is important. For those of you who have followed Gallagher since we came public more than 35 years ago, you'll recognize those statements as just a few of the 25 tenets of the Gallagher way. This document puts our core values into new words, which shape and then guide our culture, and we believe in it because it matters to us. We live it every day, and it's guiding us through these challenging times. I believe we will emerge on the other side even stronger than we were before. Okay. I'll stop now and turn it over to Doug. Doug?

Thanks, Pat, and good afternoon, everyone. Like Pat said, solid top line growth and truly remarkable bottom line performance. Our combined Brokerage and Risk Management adjusted EBITDAC is up nearly 30% over the second quarter last year. Many thanks to all of our colleagues around the globe for continuing to implement our cost control efforts while delivering unique insights and high-quality service that our clients need even more in these times. Today, I'll spend most of my time on our expense savings, give you some comments using the CFO commentary document, and then finish with thoughts on cash, M&A, and liquidity. All right. Let's go to the earnings release, Pages 4 and 7. You'll see both the Brokerage and Risk Management segments expanded adjusted EBITDAC margins this quarter. Our Brokerage segment reduced compensation and operating costs by about $60 million versus the prior year when adjusting for the roll-in impact of mergers closed after March 31, 2019. In the Risk Management segment, the savings amounted to about $14 million. So in total, we were able to adjust our expense base by about $74 million during the second quarter. That's at the top end of our estimates that we provided in April and again at our June IR Day. Let me give you a breakdown of these savings. We reduced travel, entertainment, and advertising by about $24 million. We reduced technology consulting and professional fees by $14 million, and reduced outside labor and other workforce actions saved about $13 million. We saved on office supplies, consumables, and occupancy costs of about $12 million, and lower medical plan utilization by our employees saved about $11 million. When I look towards the third quarter, I think savings will be in the $65 million to $70 million range relative to last year, again adjusting for roll-in mergers. This is a bit lower than the second quarter, simply because our production staff is beginning to travel to see clients and prospects. We are increasing our advertising costs again. In June, we did see a reversion to pre-pandemic levels of our employees utilizing our medical plan. As for the fourth quarter, that all depends on what happens with organic growth. If we're at plus 2% or plus 3% organic, then our producers are likely traveling more and we may restart some of our postponed investments, and thus, we wouldn't see as much savings in areas like technology, consulting, and professional fees. But if organic growth is flattish, we would expect to see a similar level of savings as in the third quarter. OK. Let's go to the CFO commentary document that we posted on our IR website. On Page 2, most of the items are fairly straightforward and consistent with what we provided to you in our June IR Day. There are two items to highlight, which basically offset one another. First, foreign exchange in our Brokerage segment was slightly unfavorable this quarter, roughly $0.01; and second, in the Brokerage segment amortization, that came in about $0.01 favorable, again offsetting the foreign exchange. Flipping to Page 3 to the corporate segment table. Relative to the midpoint of the guidance we provided at our June IR Day, interest in banking came in about $0.01 or so favorable. The acquisition line came in just a little bit less than $0.01, but still favorable. The corporate line is about $0.01 unfavorable, but you'll read in footnote 3, that was simply due to foreign exchange rates bouncing around in the quarter. Finally, clean energy was $0.01 below the midpoint of the range due to mild temperatures, more use of natural gas, and weaker electricity consumption due to COVID. Hot July has started off a strong third quarter, but we are still seeing natural gas prices on the lower end, and lower economic activity could likely dampen generation later in the second half of the year. So we have lowered a bit our full-year range to $60 million to $70 million net after-tax earnings. But let's not forget the $1 billion of tax credit carryforwards we have on our balance sheet. That's effectively a receivable from the government that should allow us to pay lower cash taxes for many years to come. All right. Let me wrap up with some comments on cash, M&A, and liquidity. Our customer cash receipts were strong during the quarter, rebounding in May and June after a slight slowdown in early April. So far in July, we're tracking back to prepandemic levels, and we don't see any concerns at this time. As of today, we have more than $1.3 billion of liquidity, consisting of available cash on hand of nearly $275 million and we have access to over $1 billion on our revolving credit facility. As for M&A, as Pat mentioned, we did complete 4 acquisitions during the quarter. A couple were tax-free exchanges, so we used a little of our stock but even then with an average multiple paid below 8x, there was a nice arbitrage to our own trading multiple. More importantly, our pipeline is heating up. We could have a strong finish to the year and a strong start early next year. OK. Those are my comments. A great quarter by the team for them to continue growing revenues and executing on cost containment. Let's keep the economy from another clench, we should pull off an excellent full year. Back to you, Pat.

Thank you, Doug. Operator, let's go to questions and answers.

My first question, Pat, or maybe this is for Doug, is on the expense savings. I guess I have a few questions here, but the first one is, you guys expanded your brokerage margin by 6.2%. So what I think maybe gets a little bit lost in the numbers, and if we adjust out the savings on 2% organic revenue growth, if my math is right, you saw around 120 basis points of margin improvement. So am I thinking about that correctly? And then I guess there's just some pretty good margin improvement in your business away from just the base. Or am I missing something there?

No, you have it about right. I think that's correct. We didn't give raises this quarter, which may have slightly affected the 1.2%, but you're looking at it the right way.

Okay. You provided some insights regarding the savings we might expect in the third and potentially the fourth quarter. If I recall correctly from your June Investor Day, you mentioned that about half of the savings could continue to be realized post-COVID. Given the updated figures you shared, I wanted to confirm if that guidance still stands today.

Yes. I think probably when we looked at it 6 weeks ago, that probably would have been about right. I think right now, we are learning a lot as a result of this crisis, and we are finding ways to deliver service and advice more cost-effectively than prepandemic. But I think what matters in the end is what we spend will be highly correlated to how our clients' prospects and underwriting partners expect us to do business. That will determine really how much we travel, how much we communicate virtually, do they want to be entertained anymore, how much do we advertise, and how do we advertise in the market? And then also it drives what investments in technology and technical resources we need in order to service and compete in the market. It also goes further when you look at what it takes to attract and retain talent. That will dictate a lot on how we leverage our work-from-home capabilities, maybe where we locate our offices, how we configure them; and then also a little impact on how we train, develop and mentor our folks. So that will influence the ultimate cost savings. And then also, one thing I have to say as being experts in employee benefits, we truly hope that our employees get back to utilizing our medical health and welfare plans. We need everybody to be doing their preventive exams and getting the services they need. Nothing good comes from delays in getting your medical treatment. When I bring it all back together, over the long term, could we be saving $30 million to $40 million a quarter after we adjust the real estate footprint as we adjust postage express, office occupancy cost, maybe hire some of the external resources we were using externally? Yes, maybe we could get to that number. So it wasn't far off as a guess, but it will depend a little bit on how our clients' prospects and underwriting partners want us to do business.

Okay. That's helpful. And then on the organic side, Pat, I think you said that the third quarter brokerage organic seems to be trending in line with the Q2, which is a little bit better than your June Investor Day. And then we've been hearing from some peers that there are some lags in some of the businesses, right, so the third quarter could be worse than the second quarter? Is that business mix that's helping the Q3? Is it incremental pricing? Just a little bit more color on how you see the third quarter transpiring.

Well, first of all, Elyse, as you know, July is a very big month for us. So it's a good bellwether. And we had a very, very strong July. And so I think as we sit here today, if things don't completely fall off the table in August and September, we feel just exactly the way we phrase it today.

First question. What leverage levels could you temporarily reach with the rating agencies if there was a significant event? Could you increase to a noticeably higher level for a year or two and then gradually reduce it if an opportunity arose?

Yes. I think they'd be receptive to that. I think we've seen that with other brokers. So that would seem reasonable that they would be willing to accommodate that. Do we have the appetite to do that? We probably won't push our debt ratios very much at all, but I think they could be willing to listen to that.

Okay. In terms of making progress in the mid- to large account space as a result of the merger, is it more about winning RFPs as clients seek a new broker due to consolidation, or is it more about hiring, or both? If it's the RFP process, will that be happening more next year when accounts come up for renewal after the merger?

Well, Mike, this is Pat. I think you touched on a very good subject. But let me go back to our genesis. Gallagher Bassett was started in 1962, basically, to take care of the claims for Petrus Foods with a Fortune 100 company at that time. So we've been in the large account risk management business since the 60s. Now over the past number of years, we've gotten much, much stronger in that business as well, both on the claims service side as well as on the brokerage side. And yes, I think that the fact that the top players are consolidating to three clearly gives us more opportunities. And as I said, our capabilities have gotten stronger and stronger, and we feel really good about our chances to expand that business.

Okay, great. Lastly, in response to Elyse's question, it's noteworthy to highlight the impressive quarter we had concerning margins. Doug, it seems you indicated that margin improvement extends beyond just expense savings, with over 100 basis points of improvement noted. This suggests the potential for that trend to continue unless business returns to normal, with more people and employees feeling comfortable visiting doctor's offices. It appears that the positive trend of expense savings may persist. However, sell-side estimates seem to not have adjusted sufficiently, given the significant margin improvement during a period of relatively low organic growth. I just want to ensure we fully understand this.

First, let's revisit our future expectations. In the third quarter, we anticipate savings between $65 million and $70 million. However, we may need to allocate some of that back due to incoming costs. In the fourth quarter, the savings could be about $60 million to $70 million, although we may need to set aside another $5 million. Currently, our margin expansion, as Elyse mentioned, stems from our strong performance in supplementals and contingents this quarter, which likely contributed to the margin improvement. Over the long term, we're gaining valuable insights about our business, suggesting potential changes in how we operate in response to our clients’ evolving expectations during this four-month span. The real question is whether these changes will be lasting, such as whether clients will expect multiple attendees at meetings or if they are now comfortable with our experts presenting virtually rather than traveling. We're seeing positive results in using niche experts at the point of sale, with customers increasingly accepting virtual interactions. This shift will lead to some sustainable savings. We’ve consistently stated that achieving margin expansion is challenging if we remain below 3%. Currently, we are stable at 2% with slight strength in supplementals and contingents yielding some margin expansion in the short term. Achieving 2% organic growth while trying to increase margins by a percentage point annually would be quite difficult. If we surpass 3%, we can maintain our position; exceeding 4% or 5% would facilitate further margin expansion. I don’t foresee significant changes from our previous guidance. While there are opportunities ahead, I believe that achieving 1% organic growth—with margin expansion at 2%—is a commendable outcome for the quarter.

Yes. I was hoping you could give a little thoughts on contingents and supplementals to the extent that you have any forward view into them. I guess were there any catch-ups in the first quarter or second quarter that we should kind of try to normalize out? In my mind, in this 606 world, the contingents and supplementals will be a bit more flat than maybe what we've seen or at least actual versus what I've expected.

I think there's a small amount of catch-up expected in the second quarter. Many of these payments occur in the first quarter. We have numerous contingent commission contracts and several hundred supplemental contracts. Therefore, we may see some positive developments in our second quarter, potentially aiming for a couple million dollars in announcements. The team does an excellent job with estimates. Considering the pandemic, loss ratios are holding up well. Our costs and the value we provide right now are solid. We are earning our contingents and supplementals, and I believe we have a fair series of contracts in place. I expect the carriers to perform well, so I don't foresee anything unusual in this.

Okay. Look, just to go back to the expense savings, and I don't want to beat this too much. But I guess, in my mind, thinking about the $60 million to $70 million we can expect third quarter, fourth quarter and then the idea that bringing this all together, maybe we could be $30 million or $40 million a quarter, who knows what the normal looks like moving forward. Can you give us a sense for how quickly that gap closes? And is 2020 a pivotal year where things come back relatively quickly? Or does it really depend on the economy and shelter-in-place and the fallout of COVID in all those ways?

Probably more of the second. It is highly dependent on that. I wish I had a crystal ball, and I think all of us would kind of hope that they come back a little bit faster because that means the economy gets back to moving. Guys, I think you want to have some expenses coming back into our number.

Phil, let me hit that too, this is Pat. We haven't gone to see a client in 3 months. That isn't going to hold up. So there will be a bump in your models full of no travel, no face-to-face, no entertainment, no new people. We're writing a lot of new business, and we're going to service that business. There is pressure in the field to take a trip to see a client. We do have clients that are back at work now saying to come see us. And we've got very stringent restrictions for health and safety reasons about whether we're even letting our people do that. Believe me, we get a vaccine, and our people are going back, myself included. I haven't been on the ground this long since I was 11 years old.

I guess just thinking about the third quarter organic, thinking it's going to be somewhat similar to this. Behind that, what are you assuming organic revenue growth is going to be for employee benefits to get about 2% again?

I think it'd be much the same as what we've got now. I don't see a lot of difference between the third quarter and the second quarter for our P&C business or our benefits business. So it was back about 3% this quarter.

And at this point, workers' comp revenues were down what, you said 10% through mid-June, correct?

Rates are down 2-ish, maybe 3%, something like that. But if you talk about exposure units being down, I can probably dig that out here for you in a second, but let me work on that.

So what I'm getting at is I'm just trying to understand why ultimately you're not going to have some convergence of the employee benefits, which is only down 3%. And obviously, you're still collecting on furloughed workers, COBRA, that type of thing in the workers comp, that's just based on the level of payroll. So we're down like 10 on exposures in workers' comp, I'm trying to understand why we wouldn't think that health and benefits will be down a bit more in the third quarter.

Well, I think that it might have to do with the mix of our business too. As you know, we look at this in high, medium, and low impact industries. And when we look at that, and stack it up, we have a lot of business that's in very low impact industries. So right now, you're not seeing the decreases in workers' comp and benefits in those industries at this point, even the medium categories; we're not seeing it. So there could be a convergence on it.

A big part of the drop in benefits is also related to project work and one-time stuff that we do when the economy is robust. Then people are willing to spend and come in and help me communicate with my people. Right now, they're more willing to not necessarily communicate as well. They'll take that burden on themselves. So it's projects and things like that, which also diminished in the quarter that we'll have to see a return to prior growth to get that kind of project work back. But the underlying health and welfare business does probably look more like workers' comp.

Got it. And then, Pat, I guess my follow-up is, is it still safe to say that pricing increases are offsetting exposure declines?

Yes.

So is it fair to say then that essentially, on average, accounts are renewing at basically a flat premium?

Or down because one of our key jobs is to help those clients in a difficult environment navigate what they spend. So people will take limits down. You had a $100 million umbrella this renewal or this expiration. Do you need $100 million next year? Maybe it should be $50 million. Your retention was $150 million; should we take it to $250 million? There's a lot of work that we do around that, that helps our clients mitigate the cost of their insurance while at the same time protecting their future.

Our workers' comp business experienced a decline of 2% this quarter, and while our benefits business is around 3%, we are noticing it there as well, but it's...

Got it. So, Pat, do you think it's sustainable that pricing can continue to offset exposure declines? Does that feel like something that can happen if we really are in a recession?

Yes, I do. I mean, for now, if you'd ask me that maybe March 30, I might not have been as bullish.

My first question is with regards to the cost savings. I just want to understand when you're looking at $60 million to $70 million in the third quarter, I think, Doug, you highlighted a few factors there. Are there other kind of positives that you haven't yet achieved in the second quarter that you think you can still dial up? Or is that $60 million to $70 million just simply a decline in the positives that you had the second quarter without any offset?

Just a couple of clarifications. We can't wait for our employees to get back to using their medical plan. So I wouldn't call that necessarily a bad guy. We want our folks to access our medical plans.

Fair, fair. I apologize for the use of words.

No, that's okay. I just want to ensure that we don't encounter a severity problem at the end of the year due to people not receiving their annual exams. If that means spending $5 million to $10 million each quarter, we're willing to do so. I wouldn't label travel as a negative, so I won't argue about that. Are there any other potential positives on the horizon? I think we've managed to reduce our numbers in the short term to a level that will be difficult to maintain rather than simply creating more. Therefore, I believe we're positioned reasonably well in this environment. I wouldn't anticipate many positives to counteract the negatives in the third and fourth quarters. Our estimates are fairly accurate. To put things into perspective, we provided an estimate between $50 million and $75 million when we started back in April, and just 30 days later, we reached $74 million. So, I think we have a good understanding of where we're investing and what will stick and what will return.

Right. Okay. And again, I apologize for using that terminology.

No, no, I know. I just wanted to make sure you...

Yes. My second question addresses the categories of high impact, medium impact, and low impact. After six months of this situation, as you reflect, how much have those categories changed? Specifically, how much of what you originally considered to be high impact has shifted to low impact or the other way around?

If we look at it, there were 25 SIC codes we focused on in the second quarter. Out of those high-impact 25, we were accurate with 21, and three moved from medium to high impact. The low impact category showed similar trends, while the medium showed little change. Overall, I believe our selections across low, medium, and high categories have been quite effective. I feel confident that these are the impactful businesses we've forecasted for the near term, but we'll have to see how our predictions hold up in the long run. We've done a commendable job, and I think we have a strong understanding of our business dynamics.

Yes. Just another crack at the expense question. When we think about 2Q next year, is this the kind of right run rate on a go-forward basis, kind of a step function on 2Q? And so next year, we go back to your usual template of 3% or better. We get some margin expansion. Is that the right way to think about it?

Yes. I believe you need to take a step back and consider our position. We have been expanding margins by about 1 point each year, achieving around 70 basis points annually for the past five or six years. If we enter an environment with 5% organic growth, we might relinquish some of these savings, but you'll also observe our ongoing margin improvement initiatives, which would lead to a margin expansion of approximately 50 to 70 basis points with 5% organic growth. So your perspective is accurate. However, will there be a reset compared to the second quarter next year? Likely, because if we account for an additional $30 million or $40 million in expenses and consider 70 basis points on $6 billion, it results in around $40 million. It may be a wash, possibly with slight expansion.

Okay. And then on the benefits business, it sounds like most measures are improving. Pat, you talked about July being very, very strong. I'm not sure if that was completely focused on P&C. But it sounds like 3Q organic in benefits has the prospects of being better? Is that a fair read?

I would say that my earlier comments in July were more focused on the PC aspect. It's important to note that what we're currently witnessing in benefits is systemic, and I believe that will persist. From reviewing the sales force data, we had a solid July in new business. Companies are still seeking assistance with their health, welfare, retirement, and other areas. Therefore, I expect new business to remain strong. However, I do foresee some underlying softness in employment moving forward, so I wouldn't anticipate a significantly stronger third quarter.

We are noticing a significant number of participants in our webinars, particularly the joint sessions we've organized between the benefits and property & casualty business. There is a clear interest in learning. We hosted a webinar focused on back-to-work strategies and workplace safety, which attracted customers who are considering how to structure their medical and health plans for 2021 in the current environment. This interest could lead to improved growth in the fourth quarter or the first quarter of next year as companies seek to redesign their plans. However, I’m uncertain if we will see these effects in the third quarter just yet.

Mark, you know that you've heard us say this a thousand times. 90% of the time when we compete, we're competing with smaller local brokers. And believe me, they're wondering now what else is out there. And those relationships are strong, for sure. I mean, our new business would even be higher. We don't win all the time. But just to put this in perspective, in the second quarter, our webinars, where, as Doug said, we combined property casualty and benefits in many of them around things like return to work, unprecedented attendance, with 60,000 people attending webinars in the second quarter on content and material that we're putting out. We haven't had 60,000 people attend in 10 years.

Yes. Interesting. One final question. This question about furloughs. Once maybe some of these stimulus packages, furloughs expire, maybe businesses just won't hire and they'll lose the number of employees at that point, and that will impact your employee benefits business. Do you have any perspective on that?

Yes. One of the things, we don't have that many people that actually have been technically furloughed. Maybe there's 100.5, something like that, that we've furloughed. So I think that what will happen after furlough, we're hoping we're bringing them back.

No. I think, Mark, were you talking about our clients?

Correct. That's right.

I believe that is a possibility. When the furlough and unemployment support diminishes, there could be a risk of those jobs disappearing.

Any sense on the magnitude of the risk there?

No.

Two questions on reinsurance. One is the big picture question. And Pat, you talked to, I don't know, a gazillion insurance company CEOs. And I'm wondering whether you could give us their sense on concerns over reinsurance brokerage consolidation. And then second, just hoping you could update us on how Capsicum performed over the course of the second quarter.

Let me address the second question first. I have mentioned this several times before. Capsicum is the best start-up I have been part of in my career. We are very pleased to have finalized the acquisition of the remaining equity. The team there is exceptional and has performed well in the first half, continuing to expand the business remarkably from where we started five to seven years ago. They are doing a fantastic job and will keep doing so. In my career, I have witnessed a significant amount of consolidation, and if you look at our competitors from 20 to 30 years ago, many have consolidated. This consolidation presents opportunities, and Capsicum is well positioned to capitalize on that. To be straightforward, the major buyers of reinsurance are not fond of it.

And Meyer, we are well over 10% year-to-date organic growth in Capsicum.

Okay. Operator, I think that's it. Let me just make a quick comment, and we'll say good evening. Thank you again for joining us this afternoon. As we said over and over, we delivered an excellent quarter. It's a difficult economic environment, but I remain confident that we have the right platform and strategy in place to successfully navigate these challenging times for the rest of this year and hopefully, in better times next year. Thank you all for being with us this afternoon. We really appreciate it.