Good afternoon, and welcome to Arthur J. Gallagher and Co's First Quarter 2021 Earnings Conference Call. Participants have been placed on a listen only mode. Your lines will be open for questions following the presentation. Today's call is being recorded.
If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward looking statements within the meaning of the security laws. These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the cautionary statement and risk factors contained in the company's 10 ks, 10 Q and 8 ks filings for more details on its forward looking statements. In addition, for reconciliations of the non GAAP measures discussed on this call as well as other information regarding these measures.
Please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher, Chairman, President and CTO of Arthur J. Gallagher and Co. Mr.
Gallagher, you may begin.
Thank you, Laura. Good afternoon and thank you for joining us for our Q1 2021 earnings call. On the call with me today is Doug Howell, our CFO as well as the heads of our operating divisions. What a fantastic quarter. We executed against our 4 long term operating priorities to drive shareholder value.
1st, we grew organically. 2nd, we grew through acquisitions. 3rd, we improved our productivity while raising our quality. And 4th, we continue to reap the benefits of our unique Gallagher culture. I'm extremely proud of how our team continues to deliver world class expertise and service day in and day out.
We're off to a great start in 2021. So let me give you some more detail on the quarter, starting with our brokerage segment. Reported revenue growth of 12.2%. Of that 6% was organic revenue growth better than our recent IR Day expectations, thanks to an excellent March. Our cost containment efforts saved about $60,000,000 in the quarter, helping drive our net earnings margin higher by 94 basis points and expand our adjusted EBITDAQ margin by 4.80 basis points and net earnings were up 17% and adjusted EBITDAAC was up 24%, an excellent quarter from the brokerage team.
Let me walk you around the world and give you some sound bites about each of our brokerage units, starting with our PC operations. In the U. S. Retail, organic growth was strong at about 5%. New business was excellent and retention remains strong.
In our U. S. Wholesale operations, risk placement services, organic was about 6%. Open brokerage organic was 15 due to rate increases, higher levels of new business and improved retention. Our MGA programs binding businesses were up about 4%.
Retention in new business were similar to the Q1 of 2020. However, we did see a little bit more tailwind from rate and exposure during the quarter. Moving to the UK, over 7% organic for the quarter. In both our retail and specialty operations, new business was up over prior year, while retention held pretty steady. Australia and New Zealand combined posted organic of 3%.
New business and retention were both similar to prior year. And finally, our Canadian retail operations, excellent organic of 13%, Fantastic new business and rate all added to our stellar performance again this quarter. So overall, our global PC operations posted more than 7% organic, which is better than the 5% to 6% we discussed at our Investor Day, thanks to a really strong March. Moving to our employee benefit brokerage and consulting business, 1st quarter organic was up slightly, which is better than our March IR Day expectations. Revenue from our traditional health and welfare business held up well, while Fees from consulting arrangements, special project work and our life business were up slightly.
So when I bring PC and Benefits Together, total brokerage segment organic was 6%, a really strong start to the year. Next, I'd like to make a few comments on the PC market, starting with the rate environment. Global PC rates remain firm overall and the increases we saw during the Q1 of 2021 are consistent with the past couple of quarters. Rates in Canada led the way, up double digits, driven by property and professional liability. In the U.
S, rates were up about 7%, including double digit rate increases within our wholesale open brokerage operations. Our UK Retail and London Specialty Operations combined, Rates are up about 5%. And finally, Australia and New Zealand combined rate increases are in the low single digits. At the same time, capacity is constrained in certain lines and carriers are pushing for tighter terms and conditions. There are also quite a few pockets in the U.
S, Canada and London specialty market that I would describe as hard, such as cat exposed property, cyber, umbrella and public company D and O just to name a few. So the global PC environment remains difficult, but it's giving us some tailwinds. Looking forward, we don't see conditions that would indicate this rate environment will change anytime soon, and we are seeing more and more economic activity across our client base. For example, customers are adding coverages and exposures to their existing policies and through yesterday April endorsements, Premium audits and other midterm policy adjustments are a net positive overall. That too is an encouraging sign.
On the benefits
side, recovering labor market in 2021 should favorably impact our core health and welfare business. And we remain optimistic that we will start to see some incremental HR consulting and special project work. This is a terrific time for our team to shine. Firm global rates, increasing exposure units and recovering employment. Our clients need our expertise and we are there with the very best insurance, consulting and risk management advice.
So while there's a lot of your left, I have greater conviction that our full year 2021 brokerage segment organic will be equal to or perhaps even better than pre pandemic 2019 organic. Moving on to mergers and acquisitions. We finished the Q1 with 5 completed brokerage mergers representing about $90,000,000 of estimated annualized revenues. 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. As I look at our tuck in M and A pipeline, we have more than 40 term sheets signed and or being prepared, representing about $250,000,000 of annualized revenues.
Our global platform is a great fit for savvy and successful entrepreneurs. We have the tools, data, products, niche expertise and carrier relationships to help these owners support their current clients and take their business to the next level. Next, I'd like to move to our Risk Management segment, Gallagher Bassett. 1st quarter organic growth was 0 point 6%, which is in line with our March IR Day expectations of about flat. It was still a tough compare to pre pandemic Q1 2020.
However, there is no doubt we're starting to see more and more core workers' comp claim activity when compared to what we were seeing last year at this time. Traditional workers' comp claims are returning and we are seeing fewer and fewer COVID related claims. Our cost containment efforts paid off again this quarter. We saved around $4,000,000 and expanded our adjusted EBITDAC margin by 180 basis points to 18.4%, another great quarter of execution by the Gallagher Bassett team. Looking forward to the next three quarters, We would expect new claims arising to be higher than what we saw last year, perhaps not back to pre pandemic levels quite yet, but certainly higher than last year.
So when I combine that with some really nice new business wins, we should be back to seeing organic in the upper single digits for the next few quarters. That would also bode well for keeping margins above 18% for the remainder of the year. Let me wrap up with some comments regarding our unique Gallagher culture. It's a culture that emphasizes doing things the right way for the right reasons with the right people. It's a culture of service, service to our clients, to one another and to the communities where we work and where we live.
And our culture continues to be recognized externally. Just last week, Forbes named Gallagher one of the best U. S. Employers for Diversity, And that's on top of Gallagher being recognized by the Ethisphere Institute as one of the world's most ethical companies for the 10th year in a row, 10 straight years. And once again the sole insurance broker recognized.
These recognitions are a direct reflection of our more than 30,000 global colleagues Working together as a team guided by the 25 tenants of the Gallagher Way. Culture is a key differentiator for our franchise. Every day, all of our people get up and work diligently to maintain our culture, to promote our culture, to live our culture, and I believe our culture has never been stronger. Doug, over to you.
Thanks, Pat, and good afternoon, everyone. I'll echo Pat's comments, an excellent quarter and a terrific start to the year. Today, I'll spend most of my time on both our cost savings initiatives and our clean energy cash flows, then highlight a few items in our CFO commentary document and I'll close with some comments on M and A cash and liquidity. Before I plunge in on costs, one quick comment on Page 3 in the brokerage segment organic table. You'll see that we had a great quarter for contingent commissions.
There is a little bit of favorable timing in there, call it about 50 basis points on total organic. That will flip the other way next quarter, but regardless, a really solid quarter. Okay, let's go to page 5, the brokerage segment adjusted EBITDAC table. You'll see that we grew adjusted EBITDAX by $122,000,000 over last year's Q1, resulting in about 4 80 basis points of adjusted margin expansion. That would have been closer to 5 50 basis points, But as we discussed
in
our March IR Day, M and A roll in isn't as seasonally large and we did strengthen bonus a bit given our outlook for 2021 is considerably more optimistic today than it was last year at this time, standing at the gates of a global pandemic. Within that $122,000,000 of EBITDA growth is about $60,000,000 that is directly related to our cost savings initiatives, call that about 370 basis 370 basis points of margin expansion. So when controlling for these three items, we see underlying margin expansion of about 180 basis points on that 6% all in organic. Once again, absolutely terrific execution by the team. Moving on to the Risk Management segment on Page 6.
We grew adjusted EBITDAX by $4,300,000 resulting in about 180 basis points of adjusted margin expansion, leading us to post margins nicely over 18%. Most of that was due to our cost savings So when I combine our brokerage and risk management segments, savings were around $64,000,000 pretty similar to the last three quarters and that consists of reduced travel, entertainment and advertising about $25,000,000 reduced consulting and professional fees about $15,000,000 reduced outside labor and other workforce costs about $15,000,000 and then reduced office supplies, consumables and occupancy costs of about another $9,000,000 But remember, Q1 2021 is the last quarter we have a favorable comparison to pre pandemic spend levels. So now it's all about how much of the cost savings we can hold going forward. As I look at it today, I still believe we will hold a lot of it. As we have said before, we do see certain costs coming back, but that won't happen overnight.
Our best guess is maybe $15,000,000 coming back in the Q2 2021, then step that up by about $5,000,000 to $7,000,000 in the Q3 and a similar step up again in the Q4. Those amounts that I've given are relative to 2020 same quarter as adjusted for the roll in impact of M and A. As for how that translates into margins, that's really dependent on where we land on organic. But say you assume organic is around 5% or above for the remainder of the year. The math would say that would be enough to show some full year margin expansion.
And regardless on where we land, let's keep this in perspective for the longer term. The pandemic has allowed and perhaps even forced us to accelerate a lot of the improvements we had on the drawing board and also served as an opportunity to design new and better ways to run our business. Both of these make us a more productive today than we were 15 months ago and our service quality has even improved. This will provide a lasting benefit for years to come. So let's move now to the CFO commentary document we post on our investor website.
On Page 3, most items are very similar to what we provided at our March IR Day. On Page 4, both clean energy and the corporate Line came in better than we had provided in March. The corporate line is just timing between 1st and third quarters for certain tax items, for the clean energy investments had a much better quarter and we bumped up our full year estimate. It's now looking like $70,000,000 to $80,000,000 of full year after tax earnings, which is really good news. Next, flip to page 5 of the CFO commentary.
If you missed the clean energy vignette that I gave during our March IR Day, it might be worth a listen to the replay on our Web Starts at the hour and 9 minute mark. Here are the punch lines. First, recall 2021 is the last here what we call the credit generation era. 2nd, 2022 will be the 1st meaningful year in the cash harvesting era. This means 2021 is the last year we will report GAAP earnings and 20 22 will be the 1st year meaningful cash flows show up on our cash flow statement.
You'll see here on page 5 that we think We have more than $1,000,000,000 of tax credit carry forwards on our balance sheet that should favorably impact cash flows for the next 6 to 7 years. As for M and A capacity, at March 31, available cash on hand was more than $400,000,000 and we had no outstanding borrowings on our revolving credit So with cash on hand, our untapped borrowing capacity and another year of strong cash flows, it means upwards $2,500,000,000 of M and A capacity here in 2021. With a nice M and A pipeline, we are in good shape to continue with our tuck in strategy. Before I pass it back to Pat, and that was a mouthful, as I sit here today, I see a lot of positives. Organic has nice tailwinds from rate and exposure growth.
Add to that a lot of pent up consumer demand and perhaps a wave of governmental spending, both could be additional growth catalysts. We have a robust M and A pipeline that should continue to grow, especially if an increase in capital gains tax gets And we've learned a lot from the pandemic on how to operate better, faster and cheaper, all the while improving service quality and our productivity gains we achieved over the last year appear to be sticking. This all bodes well for another year of strong cash flow generation with a kicker starting in 2022 from our clean energy investments. So we are very well positioned operationally and financially. I can feel the excitement out in the field about coming out of the pandemic stronger than ever before.
It's setting up to be another great year. Back to you, Pat.
Thanks, Doug. Laura, I think we can go to some questions and answers.
At this time, we will be conducting a question and answer session. Speakerphone. Please disable that function prior to pressing star 1 to ensure optimum sound quality. Our first question comes from the line of Elyse Greenspan with Wells Fargo. You may proceed with your question.
Hi, thanks. Good evening. My first question is on organic. You guys printed 6% in the quarter. If I look through your comments on You said perhaps you get back to where we were in 2019, which is also 6%.
But if you think about what's going on today, You pointed to still strong P and C pricing and the economy is getting better. So what would cause the forward three quarters of this year to not be stronger, like do you see anything decelerating or is it just there's some conservatism in that outlook for things to kind of stay stable over the rest of the year?
I think it depends on the recovery pattern. I think there's still a lot of unemployment in there. And yes, we're running somewhere in that 5.5% to 6% range right now. If we can hold that for the rest of the year. It looks like it could be a pretty good year.
So there's nothing inherently different today in that thinking other than it Feels kind of like 2019.
Our clients are doing much better. I think they are coming back to 2019, not surging beyond it.
Okay. And then in terms of the margin, right, You guys had alluded to 400 basis points of margin expansion at your IR event and that came 80 basis points above, but we still had the headwind we're alluding to. So what was better, I guess, relative to the IR day within the margin. Was it the contingent and supplementals? Or was it just kind of the core margin Fanchin, away from the phase, which is better than you were thinking.
It was a contingent commissions that came in better, primarily fueled that.
Okay. And then on the M and A side of things, you pointed to an active pipeline in terms There's obviously a pretty big merger between Aon and Willis that where they're working towards their regulatory approvals. And I'm not sure what you can comment on. There's obviously a lot of speculation in the press in terms of what may or may not be divested. But as you guys think about larger deals, could you just give us a sense of how you're thinking about, I guess, potentially on the M and A side, if there are properties that could become available there to the divestment process and things that could potentially be attractive to Gallagher.
Right. So there's a lot to unpack in that. I'll hit the We have up to $2,500,000,000 worth of M and A capacity this year and we've got a full pipeline of nice tuck in acquisitions You're reading and we just typically don't comment on acquisitions that we hear about in the papers, But we've got $2,500,000,000 and we like our tuck in merger strategy.
Okay, that's helpful. Thanks for the color.
Thanks, Elyse.
Our next question comes from the line of Greg Peters with Raymond James. You may proceed with your question.
Good afternoon. Hi, Greg. So I just want to Turn around the discussion on M and A. Can you go back and revisit sort of the process that Evolved and emerged when you guys were doing the JLT Global Aerospace deal in 2019. Was it a 3 month process?
Was it a 1 month process? And I guess, ultimately, what We're getting at is or where I'm going with this, there's some pretty strong timeline issues with Aon and Willis Towers Watson. And I guess some of your investors might be concerned that you in an effort to meet their timelines, if not that you're doing anything, but you might sacrifice your due diligence, if that makes sense.
Greg, I'll take a shot at that. We did the Arrow deal in London in pretty short order. We're really happy with that acquisition. It turned out to be terrific. No, that's We didn't seem to sacrifice anything.
Okay. And so one of the other areas that you referenced is culture. Maybe you can go back to the acquisitions, the large acquisitions you did in New Zealand and Australia And talk to us a little bit how you were able to ensure the continuity of your culture when you're doing large deals?
Well, I think in that situation, you had very good strong standalone businesses that we could in fact get to meet the leadership of. I think you remember the story, we did Fly to Australia met leadership and gave them the choice. They were planning on going public in their own right. We met 2 leaders with our top leadership And basically that evening said, you know, you got a choice to make. You want to go public on your own, you want to join us, Rich.
Steve Lockwood, who is still with us, Had that decision to make. I think you made a pretty good decision. Things are going great.
Yes. I think Greg on that one in particular too is that, and this It seems odd for the accountant to say this, but when you and that deal, it was owned by an industrial conglomerate that really didn't view brokerage as being its priority insurance brokerage. And I got to say for the way our sales leadership and our operational leadership came down to Australia, combined with Steve's relentless focus on sales, we really it was really the Australia business that needed a positive Shot in the arm when it comes to embracing and supporting a sales culture. And we think that what works at Gallagher, people that want to come in and sell insurance. And we've worked hard over the number of years to show that we're broker run by brokers.
And so we like to sell insurance. And that is the culture that we think really, really was the secret sauce to taking it was running negative 7% organic in Australia when we bought it. And we think we did a terrific job. It's posting nice Organic year in and year out since that since we did that.
Canada, our Canadian operation was running negative organic as well.
Well, the accountant didn't do too bad with his answer. So, I'll pivot
to Remember, it's been around 20 years, Greg.
Yes, I'm well aware. I'd like to pivot to the operations. Just the two things It stuck out. The employee benefits business clearly is still, I don't want to say Struggling, but it hasn't rebounded the way it was pre pandemic. Can you is there any ASC 606 There could be some benefit in that if the economies do recover.
There's nothing noteworthy on 606 in the numbers. What could happen in the If you had a substantial recovery in covered lives compared to our estimates covered lives Compared to our estimates today, you could see some upside development in those estimates for the rest of this year. As you know, all that employee benefits business, Most of it is a oneone renewal. We have to make our estimate of covered lives. And if there was a substantial surge in employment.
It would probably pull up those estimates a little bit over the next three quarters as that develops.
Got it. I feel like I've hogged enough of your time. I'll let others ask questions. Thanks for your answers.
Thanks, Greg.
Our next question comes from the line of David Mohanmadden with Evercore ISI. You may proceed with your question.
Hi, good evening.
Hi, David.
I had a question just following up on the benefits business and hoping to maybe Get a bit more granular detail just in terms of how you're thinking about organic throughout the rest of the year. And Typically, I know you spoke about, in your response to the previous question, just about your estimates about covered lives and what those do for the year. So I'm wondering what your expectations are
for the rest
of the year just for covered lives, like what's baked in That statement that you're assuming, we can get back to 2019 organic levels here in 2021.
Yes. So our assumptions in the 606 estimates are not substantial recovery in covered lives different than where our brokers place The business, they put that to rest here in January. So there isn't a substantial uptick in expectation. Also on that point, remember that business didn't fall off the cliff last year, because the employers that we do are pretty stable employers. And so while we didn't have a substantial decrease in covered lives last year.
And so I wouldn't expect a substantial recovery of that for the rest of the year. So kind of flat where they renewed is what our expectations were used when we set that reserve or that estimate.
Where we see some opportunity to grow back is the fee business. That business was just it was slammed shut the end of the Q1 last year. And those are projects that need to be done. They need professionals to do them and I think that There will be some more demand there.
I mean the war for talent is coming back. So I think that's and that's where we excel and that is helping employers with that.
Got it. No, that's helpful. And I'm sorry if I missed it, but did you talk about how that's trending thus far in the Q2 just on the consulting arrangements.
We didn't comment, but happy to. Not a substantial difference sitting here on April 29, as we saw, let's say, on March 29. But there is there are some green shoots. Our consultants are getting some more calls. So I think that you'll see a little bit more active summer and fall.
Let's hope.
Got it. No, that's helpful. And then maybe just Stepping back, a bigger picture question, sort of on the M and A theme, but I'm just sort of I'm wondering just how you guys are thinking about Broader acquisitions as opposed to team lift outs and sort of how you weigh both potential very similar ways of growth, but obviously different in terms of the way the financials work. So just wondering how you think about both of those avenues?
Yes, let me be real clear, David. I think these players in the market that want to ignore contracts, lift teams, litigate and call that a cheaper way to get talent. Let me see if I can clean up my comments. I don't like that. We like to see people that have built companies entrepreneurial in nature, have a culture, Respect their clients, respect their people and sell ongoing enterprises to us.
Do we recruit individual people? Absolutely. And do we bring teams across? Yes, we do. But the other method isn't for us.
Got it. Yes, that makes sense. That's all that I have. I'll let others ask questions and re queue. Thank you.
Thanks, David.
Our next question comes from the line of Mark Hughes with Truist. You may proceed with your question.
Yes. Thank you. Good afternoon. Hi, Mark. Hello.
On the risk management business, I'll ask a question about claims. You say that year over year clearly frequency or claims counts are going to be up, but it sounds like Q4 in Q1 and maybe even so far in Q2 holding relatively steady. Is that the right way to think about that?
Yes, I think there's a little bit of a crossover here, Mark. As COVID claims started to decline, we started to see regular workers' comp claim go up. You'll have a little bit of that in the Q2, but not much. I think the COVID claims are pretty well through our process at this point. And then the regular workers' comp claims will far See that going forward.
So that might be what you're seeing in that number.
On just the pricing environment, There's some talk of moderation. You all seem to be pretty consistent that the trends are holding steady, similar rates have I think in the text you might have pointed to higher rates of increase in the Q2. Are you seeing any sort of moderation?
No, we're not. I think we're seeing consistent demand for proper pricing. We've been a couple of years now into some hardening numbers. So I do think that over time that will moderate, but we're not seeing any lack of discipline in the market at this point and underwriters are continuing to ask for increases.
Yes, when you look at the dollar the year over year dollar over dollar increases, The dollars are still going up. The rate or the percentage might not be as big as because you're on a bigger base, But there's still rate increases happening everywhere. Even workers' comp is getting rate at this point.
Doug, any green shoots about extending the clean energy legislation?
There's a lot of infrastructure packages out there and I think that there's opportunity to realize this process does Contribute some pretty good value to the environment. So there's always hope. If we get An opportunity to in the infrastructure package or in the tax reconciliation process that might come through. There's always hope on that.
Thank you. Sure. Thanks, Mark.
Our next question comes from the line of Yaron Kinar with Goldman Sachs. You may proceed with your question.
Hi, good afternoon, everybody. First question on the contingent commissions. If I'm doing my math correct, I think I guess like 120 basis points or so of margin expansion coming from contingencies. Does that resonate?
What do you assume is the margin at?
About 70%.
Yes, it
might be a little thick. I mean, a lot of the contingent commissions go to When it comes to leadership variable comp, there's a piece of that that fuels it. So 70% might be a little rich, but Some of it, yes, maybe 100 basis points, maybe not 120.
Okay. Okay. So you got like 60 basis points of, Call it, organic margin expansion, 100 coming from contingents and the restaurant cost saves, If I wanted to divide it into buckets?
Probably almost a point from regular thrust than when you take out the contingents and you can't take out the margin from that.
Okay, okay. That's helpful. And Doug, did I hear you say that you're switching over to cash EPS in 2022?
No, I think what I was saying is that in the Clean Energy segment, you're going to start seeing $125,000,000 to 100 1,000,000 of additional cash flows that will come through
our
cash flow statement. We'll obviously make sure that we call that out every Quarter on how much is that, because it's the rundown of that deferred tax asset that sits on our balance sheet that moves from being a non cash asset into a cash asset. So we'll make sure we highlight it as we go forward.
Got it. Okay. Thank you very much and congrats on the quarter.
Thanks, John.
Our next question comes from the line of Meyer Shields with KBW. You may proceed with your question.
Thanks. I guess the big dumb question that I'm Struggling with is that if we're seeing rate increases hold flat and we assume that the economy comes back, wouldn't that point to organic growth on a year over year basis Well, about
5. Hope so. Part
of that though too is remember our job is to help our client Structure programs that actually mitigate some of the rate increase. It's hard to mitigate exposure growth Unless you want to take more deductibles or lower limits. Rate increases, there's some you You can do the same thing, but if somebody adds 2 or 3 more trucks, you got to ensure those other 2 or 3 more trucks. So if exposure units overtake The recovery from rate on that, the programs that we design, you'd see more of that hitting the bottom line. But if it's just purely rate, You can mitigate some of that through different program structure.
Okay. That's very helpful. And then if I can dig just a little deeper on the claims the workers' compensation claims that you're seeing in the trends. Is there a material difference to your revenues when you're handling traditional work comp claims versus COVID?
Well, there's 2 different there's different pieces in the there's the liability piece and then there's the medical or the medical only piece in traditional workers' comp. I think that the longer tail liability type workers' comp claim is more profitable to us than just the Kind of the recurring medical only claims or basically paying the bills on it. So you would see that you would the revenues that come off A liability related workers' comp claim would probably exceed the COVID claims.
Okay. Perfect. Yes. That's very helpful. Thanks, Doug.
Thanks, Meyer.
Our last question comes from the line of Phil Stefano with Deutsche Bank, you may proceed with your question.
Yes, thanks and good evening. Just a few quick ones, most have been asked and answered. But so as we think about The appropriate base for our margin for Q1 2022, is it the 39.2% that was printed? Or should we make some kind of adjustment for The margin benefit from the contingents and supplementals.
Okay. So you're asking about a year from now and first Quarter 2020. I'll help you think that out a second here as I think that, yes, when you look at our 39.2, the base I should start from here. You heard the earlier question, we probably got a little lift from contingent commissions in that number. So you want to start off a little bit lower base.
And let's say by then we're holding half of our savings, long term savings compared To where we are today, maybe there's $30,000,000 worth of costs that are back into the structure by that time and spread that Across $1,800,000,000 or $1,900,000,000 that's probably the right way to think about next year.
Okay. But it's fair to say any of this lumpy stuff should probably be normalized for?
Say that again, I'm sorry.
It's fair to say that, I mean, the lumpy kind of impacts like a Contingent over earning, we should probably normalize for that as we think about the forward margin.
Yes, I think so.
Okay. All right, perfect.
And then from the Risk Management segment, I guess, there was a comment around it being in the upper single digits for the next About your comment about claim counts being kind of flattish 4th quarter to 1st quarter, it feels like that's reflected in the revenues. And as we think about claim counts expanding with the economy opening back up, I guess, maybe 2021 is kind of one of those instances where I look at this sequentially as opposed to on a year over year basis. Is that off base?
Either way, as long as you understand that last year's Q2, there was a trough and there'll be Some recovery out of it this year relative to that quarter. But if you're basing it off the last two quarters and want to do a run rate that way, It's probably not a bad way to do it either.
Okay. All right. Perfect.
I think that's all I had.
Thank you, Phil. Well, Thank you again everybody for being on today. This afternoon we really appreciate it. We delivered an excellent Q1 and I'd like Thank all of our Gallagher professionals for their hard work, our clients for their trust and our carrier partners for their support. I'm confident that we can deliver another great year of financial performance in 2021 and truly believe we're just getting started.
Thanks for being with us.