Arthur J. Gallagher & Company (AJG) — Q1 2026 Earnings Call Transcript

Thank you very much. Good afternoon, and thank you for joining us for our first quarter 2026 earnings call. On the call with me today is Doug Howell, our CFO; and other members of the management team. We had a terrific first quarter. For our Brokerage and Risk Management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions, delivered revenue growth of 28% in the first quarter. Organic growth was 5%, and M&A contributed 23%, driven by strong results from AssuredPartners. On a segment basis, Brokerage revenues were up 30%, of which organic was 5%. We saw strong growth across retail, P/C, wholesale, reinsurance and benefits. Our Risk Management segment, Gallagher Bassett, posted revenues up 14%, of which organic was 10%. We saw excellent new business and strong client retention. And we continue to generate excellent profits. Our Brokerage and Risk Management segments combined reported net earnings growth of 12% and adjusted EBITDAC growth of 18%. This quarter marks 24 consecutive quarters of double-digit adjusted EBITDAC growth. And we had another quarter of solid underlying margin expansion, which Doug will break down for you in a few minutes. Today, I'll touch on all four of our strategic pillars: growing organically, growing through mergers and acquisitions, improving our productivity and quality, and our culture. First, organic growth. Our client retention, new business win rates and client business activity continue to be tailwinds. And in today's environment, insurance rates are still contributing to organic growth, but to a lesser extent than over the last few years. Carriers are continuing to behave rationally and looking to grow in lines and geographies where there's an acceptable return, yet remaining disciplined by seeking rate increases where needed to generate an appropriate underwriting profit. Good loss experience accounts can typically see premium relief, while accounts with poor experience are seeing increases. Breaking this down by businesses. Within our global retail P/C businesses, the first quarter 2026 market environment is materially unchanged from the prior quarter. Insurance renewal premium change, which includes both rate and exposure, continued to increase in the low single digits in the first quarter, with property decreases more than offset by increases across most casualty classes. By product line, we saw the following in our global P/C retail businesses: Property down 7% with rate pressure most pronounced in cat-exposed and larger risks. Professional lines, including D&O and cyber, up 2%; workers' comp, up 2%; personal lines, up 4%; package up 2%; and casualty lines, which includes general liability, commercial auto, and umbrella, up 4% overall. Excluding property, renewal premium changes increased 4% in the quarter, with higher increases in the U.S. versus international markets. We continue to see significant differences in renewal premiums by client size with our larger accounts driving much of the downward pressure in premiums. Our customers are opting in and buying more coverage as their prices decrease, whereas over the last few years, they were opting out of coverage when their prices were increasing. Within the U.S. excess and surplus market, we continue to see a bifurcated market. We're seeing submarkets behaving differently after several years of a very strong hard market. E&S property, particularly cat-exposed risks, is the most competitive area right now. That reflects a pricing reset, not a demand issue. Policy counts and submissions remain healthy and E&S continues to be the right solution for complex property risks. E&S casualty remains firm. Renewal premiums are up mid-single digits. Capacity is disciplined and demand is steady across general and excess liability as well as umbrella. E&S professional lines are largely stable with renewal premiums up low single digits and better underwriting discipline than in prior cycles. The fastest-growing part of E&S continues to come from emerging specialty risks such as data centers and AI-related infrastructure as well as other complex exposures. These risks don't fit well in the admitted markets and represent a structural multiyear growth opportunity for E&S. Moving to reinsurance. The market remains well capitalized and renewal activity continues to reflect ample capacity. In the first quarter, we saw strong growth across lines and across geographies with another excellent quarter of new business overcoming rate headwinds. At the January 1 renewals, we saw rate decreases across property and specialty lines with lower layers holding up better than the top end of the reinsurance towers. Within casualty, pricing was broadly stable as most reinsurers remain cautious around U.S.-focused casualty risks given loss cost trends and prior year loss development. Outside the United States, additional capacity put some downward pressure on pricing in selected markets. The April 1 renewals showed similar conditions with a bit more downward pricing pressure on the Japan-specific renewals. Outside of Japan, we saw continued interest from carriers in managing earnings volatility and supporting growth through additional protection. Geopolitical developments, including the conflict in the Middle East, are impacting specific coverages such as marine war and political violence and terror, though it's too early to assess any broader ultimate impact on reinsurance pricing. Today's dynamic market is ideal for our reinsurance team to demonstrate our expertise, product knowledge and data-driven capabilities to ensure the best coverage for our clients. Turning to London Specialty. Similar to the U.S. E&S market, pressure continues in North American cat-exposed property, while competition in D&O, professional lines, financial institutions and cyber is moderating. War-related risks remain the clear exception. Marine, aviation and political violence exposures tied to active conflict zones are seeing significant repricing and more selective deployment of capacity. War cover remains available, but it requires careful structure and coordinated execution across markets. Our teams across London, the U.S. and our international network are working closely together to secure capacity under current market terms and help our clients to navigate this rapidly changing environment. Moving to employee benefits, which continues to perform very well. We're seeing steady demand from employers across health, retirement, voluntary benefits, executive benefits, life and HR solutions. Our clients are still actively hiring and remain focused on talent attraction and talent retention. And there is more and more demand for our experts to provide creative solutions to help our clients control their escalating benefits costs, driven by general procedures, innovative medical treatments and prescription drugs, as clients compensate us based on our advice, advocacy, creative plan design and cost management strategies, all of which support both demand and retention across our benefits business. Last but not least, Gallagher Bassett posted another strong growth quarter. We continue to see strong new business and excellent client retention. The team is adding new products, new services and embracing new technology, including AI and machine learning, to further improve the claims experience for our clients. Gallagher Bassett is positioned for fantastic growth again in 2026. Next, let me provide you some comments on our view of the economy. The U.S. labor market continues to show strong demand for new workers with the number of job openings still ahead of the number of people looking for work. Our daily revenue indications have historically been a terrific indicator of economic activity. Our proprietary data from audits, endorsements and cancellations continues to show solid business activity through the first quarter and actually through yesterday. This data shows that exposure units such as revenues, payroll headcount or trucks on the road, to name a few, are still in positive territory, and our clients' businesses are continuing to grow. So to wrap up my thoughts on organic growth prospects, today, property pricing is moderating. That's well understood. But property is only one part of our very large and very diverse portfolio. Casualty, benefits, reinsurance and Gallagher Bassett are all strong, and that strength is broad-based across geographies, client sizes and products. In addition, our client exposure growth is solid. Our retention is stable, and we are seeing excellent new business wins, all positively contributing to our organic growth. The demand for our expertise continues to grow because clients value our advocacy, our analytics and our ability to navigate complexity. This gives us confidence in the durability of our results and provides further confidence in our 2026 full year organic growth outlook of 6%. Now shifting to our second strategic pillar, mergers and acquisitions. During the first quarter, we completed nine new tuck-in mergers, representing around $60 million of estimated annualized revenue. Looking at our pipeline, we have over 40 term sheets signed or being prepared, representing around $400 million of annualized revenues. For those new partners joining us, I'd like to extend a very warm welcome to the Gallagher family of professionals. Good firms always have a choice, and it would be terrific if they chose to partner with Gallagher. As for the AssuredPartners acquisition, we are following our proven integration playbook developed from doing over 750 mergers over the last 20 years. We are on plan without exception. The cultural alignment has been exactly what we expected, a culture with a strong client-first mindset and a genuine excitement for leveraging our expertise, tools and capabilities. We are eight months in, performance is terrific, and we are already better together. Let me move to our third strategic pillar, to continuously improve our productivity and quality. We view AI, digitization and automation as a continuation of that long-standing strategy. It builds on decades of work standardizing processes, centralizing our global data and improving execution, all to help our people provide the very best advice and service to our clients. At our March 17 Investor Day, we spent considerable time discussing how we were already deploying AI across Gallagher. I invite you to listen to this webcast still on our website. Let me summarize a few key points from our March commentary. First, we expect AI to be minimally disruptive when it comes to selling insurance, providing consulting services and managing claims. Our business is advisory-led, complex and relationship-driven. Second, AI actually should accelerate our growth. AI enhances our ability to deliver faster, higher-quality advice and more tailored client solutions, improving our speed to market, win rates, retention and providing better client experiences. Third, operational change is not new to Gallagher. For more than two decades, we've standardized processes and centralized our proprietary data across the company. That foundation allows us to deploy AI today across P/C, claims, reinsurance, benefits and mergers and acquisitions because we have embedded operational excellence into our DNA. We already have the brains and financial resources to quickly deploy AI. In our view, we're ahead, and that advantage compounds over time. Fourth, AI is already deployed across many of our core platforms and workflows. It helps our teams make better decisions and spend more time advising clients while continuing to raise productivity and quality. And finally, and most importantly, AI strengthens, not replaces the broker and adviser model. AI is another tool that strengthens how we serve clients. It does not change the fundamental nature of our business. AI makes every single one of our professionals better at what they already do by amplifying our expertise, our data and our market access. Let me wrap up by spending some time on our fourth strategic pillar, our culture. We are a growth culture company. If you spend some time reading our mission statement and the 25 tenets of The Gallagher Way, you might come to realize that they are all really about supporting growth, but growing the right way, the collaborative way, the professional and respectful and ethical way, all the while holding ourselves accountable for execution and growing shareholder value. We are a long-term growth culture that recognizes we grow because of the relevance of our advice, our analytics and our ability to navigate complexity, not because where we are in an insurance pricing cycle. We've proven we can grow through any cycle, and this one is no different. Culture is also what allows us to scale. As we grow organically and through mergers, we don't change who we are. Our culture promotes welcoming new colleagues into a model that emphasizes collaboration, entrepreneurship and shared success, all supported by strong processes, data and tools. And importantly, culture is what makes our investments in talent, technology and AI work. Our people embrace change when it helps them better serve their clients, improve quality and deliver stronger results. So when we talk about Gallagher's performance, our culture isn't separate from the numbers. It's embedded in them. Okay. An excellent quarter behind us, a terrific future ahead of us. I'll stop now and turn it over to Doug to walk through the financial details. Doug?

All right. Thanks, Pat, and hello, everyone. Today, I'll spend about three minutes flipping page by page through our earnings release and give some quick highlights. I'll then spend about five minutes on the CFO commentary document we post on our website and then close with a minute on cash, M&A and capital management. Overall, the punchlines you'll hear today, and you've probably already seen that in your review of our information, we are right in line and in many cases, better than what we forecasted in our March IR Day. Okay. Let's go to the earnings release, Page 1. Just step back for a minute: adjusted revenues, EBITDAC and EPS, all up 30%. You'll get to those percentages when you remove from prior year numbers $143 million, that's $0.41 of interest income we earned on the funds we are holding to buy AssuredPartners. You'll read that in the footnote at the bottom of this page. That's an amazing quarter and demonstrates our four strategic pillars are delivering terrific shareholder value. Moving next to Page 2. Brokerage organic at 5%, right in line with our March IR Day expectations. One call out here: supplementals and contingents combined up nearly 10%. As you've seen in the past, there can be some geography between those two lines, especially in first quarter as we renegotiate contracts to start a new year. Then at the bottom of the page, you'll see we had a solid start to the year for our tuck-in M&A program. Our two-pronged growth strategy combined, that's organic and M&A, posted 28% total revenue growth this quarter for our Brokerage segment. That would be 33% if you remove the $143 million of interest income on the AP funds. That's absolutely terrific. Moving to the top of Page 3 and the top of Page 4. As we discussed during our last few earnings and IR Day calls, current quarter percentages at the bottom of these tables are not really all that helpful when compared to prior because prior year had that interest income from the AP funds I just highlighted. It really clouds comparability. So I think it's better for me to defer comments on our margin until I get to Page 7 of the CFO commentary document. When I do, you'll quickly see that our productivity and quality strategic pillar delivered strong underlying margin expansion this quarter, right in line with our March IR Day forecast. Moving now to the bottom of Page 4, an excellent quarter for our Risk Management segment, Gallagher Bassett. Organic at 10% and M&A added another 2.5 points, bringing total reported revenue up 14% and adjusted revenue up 13% for this segment. This too shows the power of our two-pronged growth strategies. So moving now to Page 5. Risk Management showed continuous compensation and operating expense ratio improvement, leading to an adjusted EBITDAC margin up 130 basis points. There is no noise in this segment from interest on funds held to buy AP. So it's very easy to see the excellent growth in our revenues, improvements in our productivity and our growth in our adjusted EBITDAC, all better than our IR Day commentary and forecast. Flipping to Page 6. The Corporate segment adjusted results were, in total, pretty close to the midpoint of the range we provided during our March IR Day. So there's no new news here. Last, on Page 7, about halfway down, you'll read we repurchased about 1.4 million shares for approximately $310 million this quarter. All right. Let's leave the earnings release and go now to the CFO commentary document. Starting on Page 3. Most items are very close to what we provided in March. So just double check that these items are considered in your models. Going to Page 4. This is the new organic growth table we started providing last December. Here are the punchlines. First, we saw solid first quarter organic growth across each business and geography with each posting organic at or above our March IR Day commentary. Next, we've now added our second quarter outlook and see similar performance for each of our businesses. These percentages incorporate all the information Pat just provided, such as net new business wins, customer buying behaviors, the rate environment and the economic landscape. These are our midpoint best estimates ground up as of today. Third, same with our full year outlook, which has not changed from March. We post that and 2026 will be another excellent year of organic growth. Moving to Page 5, the investment income table. Three comments here. First, our 2026 forecasts reflect current FX rates and changes in fiduciary cash balances. Second, our forward estimates now assume a future 25 basis point rate cut in September. Third, this is a helpful table to show you a full historical view of the amount of interest income we earned on the funds we are holding to buy AP. And it's a reminder as a heads up when you build your models, second quarter had $144 million of interest earned and then $76 million in the third quarter of 2025, which will again cause comparability noise throughout our results when we post our next two quarters' results. Staying on Page 5, but shifting down to the rollover revenue table, which excludes AssuredPartners. Four quick comments here. First, the first quarter 2026 subtotal of $126 million for Brokerage came in pretty close to our March estimate. Second, looking forward, the pinkish columns to the right include estimated 2026 revenues for brokerage M&A closed through yesterday. And of course, you'll need to make a pick for future M&A also. Third, one modeling heads up to make sure you adjust your prior year revenues for the divestiture and other line before you apply your organic growth assumption. And fourth, you'll see the same information down below for our Risk Management segment. All right. Let's move to Page 6, information on AssuredPartners. A few comments here. They're mostly modeling helpers, and then I'll add some qualitative comments at the end. 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 saw last quarter. Second, the footnote there reminds you that 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. Third, this table does not include any revenue or expense synergies. So those would be incremental to the numbers you see here, and you would need to model them separately. The footnote says that we still see annualized run rate synergies of $160 million by the end of 2026 and then up to $300 million by early 2028. That said, more and more, I'm feeling there could be some additional upside to these numbers. Maybe I'll have an update during our June IR Day. Fourth, a reminder that you can use for modeling the second quarter 2026 column as is, but for third and fourth quarters, you should only add the delta between the pink numbers and the blue 2025 numbers. Fifth, as for financial performance, an excellent first quarter, which came in fairly close to our March IR Day estimates. Only a few small changes to our outlook for the rest of the year also. Qualitatively, our clients are happy and client retention is excellent. The integration plan is tracking to our expectations. Our teams are energized and coming together. We're having some terrific new business wins showing that we are indeed better together, and our employee and producer retention is strong and right at historical norms. All of this gives me confidence in our 2026 financial performance outlook. Moving now to Page 7, the Brokerage segment margin bridge. Favorable comments continue to come in that this picture is worth a thousand words. It's very easy to see all the components that influence our margin change period-over-period. Let you quickly dig out that our productivity and quality efforts are delivering underlying margin expansion. You'll see that on the second to the last line of the table. We had terrific expansion this quarter of 50 basis points. And you'll see to the far right, we're still forecasting full year 40 to 60 basis points of underlying margin expansion. Both of those are right in line with what we had discussed during our March IR Day. And despite sounding like a broken record, worth another call out that the first line of this table shows you the impact of investment income earned on the funds we held to buy AP. That's what will again cause the headline headache for the next two quarters. Then thankfully, it should be an easier compare. All right. Let's move to Page 8, our Corporate segment. You'll see that our adjusted first quarter as well as our outlook for the rest of the year are very close to what we presented in March. Just two call-outs here. The upper right box shows you the changes in FX, which caused the corporate line to bounce around a bit. But remember, these unrealized gains and losses are noncash. Now look at the lower right box. This is new and a bit of housekeeping here. We removed the separate page that recapped our historical clean energy investment cash flows. This box tells the same story just shorter. It shows you that we had $655 million of tax credit carryovers that we will use over the next few years. Second, it also shows you that we have about $11 billion of tax deductible amortization expense, which we will deduct in the future. Together, these two items are worth about $3.4 billion of cash tax savings, which gets you to the punchline we've added in this box. Our cash taxes paid will be around 10% of EBITDAC for the foreseeable future. You model that and you'll get close. All right. Finally, a few comments on cash, capital management and M&A funding. When I look at available cash on hand, expected free cash flows and future investment-grade borrowings, over the next two years, we might have close to $10 billion to fund M&A before using any stock. Our M&A pipeline remains strong and is full of targets at attractive multiples, which we are seeing coming down a bit. It still creates an immediate shareholder value through nice arbitrage. I mentioned earlier that in the first quarter, we repurchased approximately $310 million of our shares. We continue to believe our equity is woefully undervalued by the market, so this repurchase was opportunistic. But our priorities really haven't changed. We'll continue to invest in organic growth. We'll remain active in mergers and acquisitions, staying consistent in our approach and disciplined in our pricing, and we will deploy excess capital in a way that maximizes long-term shareholder value. So those are my comments. A great quarter to kick off what looks like could be another terrific year. Back to you, Pat.

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

I appreciate Pat's comments on the strength outside of property lines. Just looking at Slide 4 of the CFO commentary, can you expand on what your expectations are for the higher organic growth in Americas Retail in the second quarter? I guess it's a little surprising given the greater property mix in Q2.

So the question you're asking about, if I look here in the second quarter, we believe there's 5% in our Americas Retail Brokerage segment. Is that what you're looking at?

Yes.

All right. Fine. So if you really look at what happened last year, Canada actually had a slightly smaller quarter in the second quarter last year. So that's why it gets it closer to that 5% number as we're going forward here.

Got it. And then can you talk a little bit more about whether the M&A environment has changed over the last couple of months? How much of that's factoring into your buyback decisions? And can you share how much you've repurchased so far in the second quarter?

So we've been in a quiet period the entire second quarter. So we have not repurchased any shares thus far this quarter. As for the environment on M&A, multiples are coming down. We are seeing that. We're seeing that sellers are becoming a little bit more rational on that. First quarter is historically always our smallest quarter, so you can't really read much into that. We typically have a wrap up toward the end of the year. We'll show more in the later quarters. And then finally, when it comes to balancing M&A versus share repurchases, if there's a terrific opportunity out there right in the middle of the fairway that makes us better together that is a long-term buy, we still think there's value in that over our shares. But it's got to be at the right multiple in today's world.

My first question is on the core commission and fee organic growth, the 4% in the quarter. In your minds, does that represent a floor?

I'm sorry, Elyse, I didn't hear you. Say it again.

Does it represent a floor?

Yes, like a floor to where you see the growth from here, the 4%, yes.

Yes. As we look out at this point in time, as we said in our prepared remarks, we see a pretty good year coming at us.

And then my second question: you provide a lot of guidance and disclosure by line. It looks like organic growth in brokerage, you did 4.5% in Q1, you’re looking at 5% in Q2, and you left the guide for 5.5% for the full year. That implies a pickup in the back half. Doug, I think last we spoke you mentioned incremental reinsurance demand being a driver there. Is that still your expectation that that will drive improving organic growth in the second half of the year relative to Q1 and Q2?

Yes. A couple of reasons why. We have a really successful new business pipeline right now, and we're seeing that in reinsurance, retail, bond and specialty and in our captive business. We've also done a good job of getting in raises on our fee accounts, which is a tailwind. I think we'll see some pretty strong growth in supplements and contingents for the rest of the year. You've seen the numbers the carriers are posting that should bode favorably for us. And then, just in general, we're seeing some pretty good success that's going to push through a property market. Now if property sells off over the next 60 days in a big way, that's a different discussion. But it's in that 5% range, plus or minus a little bit. I think we're in great shape.

And this guidance assumes consistent property declines for the rest of the year relative to what you saw in Q1?

That's correct.

Sticking on organic growth, your full year estimate for specialty and U.S. wholesale growth is 6%, which implies a pickup in the back half of the year. Given the pricing environment is not great, what are your expectations for why it will pick up?

Property is going to take its biggest hole in the second quarter. For the second half of the year, we have a pretty good view on property right now—we're a month into it. We'll see what happens in the May and June renewals. We just don't have that much property stress for the rest of the year.

Got it. My follow-up: I noticed in the CFO commentary that the multiples you list for tuck-in acquisitions, the lower end of that range came down a bit. Can you add more color on what you're seeing in the market on multiples and why you think that is?

That's just what we're seeing right now. The term sheets in the pipeline are recognizing that multiples are coming down a little bit. We noted that on Page 3 of the CFO commentary, and you can read it the way you're reading it.

And why? Look at our stock price. Our multiple is down. Pretty simple. We're not here to dilute our shareholders.

Pat, you said insurance rates still contributed to growth in the quarter, but to a lesser extent. You have previously broken out components of organic between net new, price and exposure growth. Can you unpack that for this quarter and how you think about it within the outlook for 5.5% for the full year?

The way to look at it right now is new business will exceed lost business. Customers will opt in, which will come through as rate and exposure growth as exposures grow. If it's a 6% year, we're probably in a period where rate contributes about 1% to 1.5%. Net new business wins will probably contribute around 2.5%. Exposure growth will add another 1.5 points. Rate might be on the lowest end of that growth piece. So it's going to be net new business wins, our clients' exposure units growth and clients opting in and buying more insurance. And then rate will be what it is.

If property RPC is down 7% this quarter, and if that moved to down 10% or 11%, how would that sensitize organic growth?

Doing the rough math, it might put about a one-point strain on the full year overall if property deteriorated moderately further. It might have to move closer to a double-digit change, perhaps toward 12% or 13%, to have a sharper impact. Also remember much of our property is done on a fee for big property schedules, which mitigates the impact. So the effect we're seeing right now could be around one point for the full year, not a massive hit.

And rates are approaching a pretty low level right now. In some instances, we're seeing rates approach 2017 pricing. So I don't think there's a structural big jump further beyond that, though there could be some changes in pockets.

And again, rates are one thing, but our revenues are based on exposures, opting in and growing risk profile. Casualty is still tough. The question had been about property, but it's not just rate for us. It is highly sensitive also to exposures, which are growing right now.

My first question is on E&S. You called out data centers and AI-related infrastructure as the fastest-growing part of the E&S market. Can you help us size what percentage of submissions today is related to that and the outlook going forward?

As a percentage, it's still a very small item. It's not anecdotal, but illustrative: specialty markets come in different buckets, and as these things come online they will need the specialty and E&S market to get cover. In terms of what we're doing, we've got a strong practice; we have a bespoke model that brings the right experts for the various covers that go along with data centers, and it's working well.

Let's not overstate it: there is great growth opportunity across the data center effort, and E&S is responding. It takes world market expertise to complete those placements and great expertise, which we have. But as a percentage of the overall market, this is not earth-shattering yet.

My second question is on the Middle East conflict. You flagged significant repricing and more selective capacity deployment in marine war, political violence and terror. For Gallagher specifically, is this a net organic tailwind given your London specialty and reinsurance positioning?

Yes, it is, though we must be sensitive. Just because war rates are there and cover is available doesn't mean ships are sailing. There's a caution about crew safety and shippers taking the risk. The market is available but it takes careful structuring and diligence. When placements bind, they're a net positive.

Does capacity constraint or placement difficulty limit your ability to capture that business?

No, not at the present time.

On the AssuredPartners estimates, I see revenues down a little and margins up a bit. Is that driven by the same real estate moves you mentioned at the March 17 investor meeting, or is there something else?

Those revenue numbers are midpoints of our range and will move a little as we convert locations to our systems and get deeper insight into revenue sources. For example, some branches historically reported co-broker payments as expense instead of contra revenue, which causes shifts. The movement this quarter was small—about $10 million on an $800-plus million estimate, so about a 1% variance. Importantly, we purchased cash flow; the EBITDAC estimates have held up. We'll continue to roll branches onto our books over the next 12 to 15 months.

Once the business rolls into your organic curve, will those bounces between line items no longer be an issue?

Yes, once we have better insight and everything is on our systems, you will see consistent accounting treatment. The cash flows are the same; it's just the timing and presentation that will sort out.

A number of competitors have talked about challenges with new business, but it sounds like you're seeing things go pretty well. Is there any reason at this point in the cycle, with property down and maybe some pressure on casualty, why new business would be more difficult? Anything structural or cyclical contributing to that?

We look closely at this. A few points: digitizing the relationship with the client increases retention by about a full point—moving from roughly 94.5% to 95.5%—and that translates to renewing a very large share of eligible business. These same tools also increase our hit ratio. Historically our hit ratio was around 32%. With our tools, we're approaching 45% when we use them. We have multiple tools—Gallagher Drive, and we're announcing Blueprint at RIMS this week to improve risk and insurability profiles. Our reinsurance team also has a workbench using AI to show clients different approaches. These tools, which we're investing hundreds of millions into, are getting traction and are a differentiator. Often when we compete, it's against firms substantially smaller than we are. The tools allow us to quantify a client's risk profile and show how we can improve it, which directly improves marketplace positioning and pricing. So our hit ratio is increasing, we have a lot of at-bats, and I feel very confident about new business.

Is there any structural or cyclical reason—putting your advantages aside—why it might be harder to sign new business in a softer market, since prices are going down? Is it easier or harder to tempt clients away?

It's not easier. Brokerage is a tough, relationship-driven business. You have to convince someone to leave a provider they like and trust. That remains difficult. When there's a softer market, there's less pain to compel a move. But our producers are executing well, and if they get a shot at a relationship, they've got a strong chance of winning it.

Everyone on the call, thank you for joining us this afternoon. I remain extremely confident in where Gallagher is headed. Our strategy is consistent. Our execution is strong, and our culture continues to differentiate us. To more than the 72,000 colleagues around the world, thank you. We've had a great quarter. Your talent and dedication are what makes this company great, and that is the Gallagher Way. Thank all of you for being on, and have a great evening.