Disconnect at this time. Some of the comments made during this investor meeting include answers given in response to questions that may constitute forward-looking statements within the meaning of the securities laws. These forward-looking statements are provided in the spirit of the SEC's request that companies provide investors with as much forward-looking information as possible in the midst of the COVID-19 crisis. They are subject to certain risks and uncertainties discussed during this meeting or described in the company's most recent Form 10-K and subsequent Form 10-Q filings. In particular, COVID-19 has created significant volatility, uncertainty, and economic disruption that may impact our forward-looking statements. Actual results may differ materially from those discussed today, and the company undertakes no obligation to update these statements. It's now my pleasure to introduce J. Patrick Gallagher, Chairman, President, and CEO of Arthur J. Gallagher & Co. Mr. Gallagher, you may begin.
Thank you. Good morning, and thank you for joining us today for our quarterly investor meeting. It's our second time doing this meeting virtually, and we think it's a nice opportunity for investors to both get up to speed with the Gallagher story and for those that have followed us for some time to get an update on our business from when we last spoke with you late in July during our second quarter earnings call. The format will be similar to our June Investor Day. Each of our business leaders will speak for seven minutes or so, describing their business, how and where they compete, while touching on topics like the rate environment, organic margins, the merger and acquisition pipeline, and efforts to improve productivity and invest in quality.
Our leaders will also go deeper into what they are seeing in the third and fourth quarters, and Doug will wrap up with some financial commentary. Our prepared remarks should last around an hour in total, and then we will open up the line for questions and answers from the group. Before we begin, let me start by saying the health and safety of our colleagues continues to be our top priority. Our division leaders will not be commenting individually on our efforts in the interest of time, but that does not mean it is not extremely important to each and every one of us. Among our 33,000 employees, we have only had a few serious cases of COVID-19, all contracted outside of our offices, but even one is too many, and our thoughts go out to them and their families.
I'm extremely pleased with how the team has performed during the challenging period, continuing to service our clients, sell new business, look at merger and acquisition opportunities, and most importantly, the teams are excelling together, even while physically apart, thanks in large part to our bedrock culture. Even while working virtually, we are helping our clients navigate the current crisis. Many businesses are hurting, and the cost of risk is increasing. Our talented professionals excel in times like these. We provide creative advice and solutions combined with deep product knowledge, superior carrier relationships, and analytics and other data-driven insights that our primary competitors can't replicate. Remember, about 90% of the time we're competing against a smaller broker. We believe the pandemic, combined with an already difficult market environment, is exposing weaker competitors and leading to a flight to quality.
Financially, we're delivering on our objective to generate adjusted EBITDA during 2020 substantially better than last year. You saw we delivered on that in a big way in the second quarter, up 30%. Since our first quarter earnings call in April, we've been saying that our cost control playbook could provide substantial quarterly savings. We saved about $74 million in the second quarter, and we are confident we will save between $60 million and $70 million in the third and fourth quarters. I'm pleased with our team's execution. Doug will dive deeper into our progress during his comments. Each member of management will give you detailed thoughts on their business, but let me give you a global perspective on a couple of topics. First, the PC pricing environment, and second, exposure unit changes due to COVID.
PC pricing around the globe continues to rise and increases are stronger each month as the month goes by. When I look at our global PC book, rate is up about 7-8%. Property remains the strongest line of business, up 13%. Next is professional liability, up over 10%. Other casualty lines are up mid-single digits, and even workers' comp is modestly positive. Australia and New Zealand are the only exceptions to this trend, and while rates are still increasing, up low single digits, the increases we've seen in 2020 aren't as strong as we saw in 2018 and 2019. Capacity is shrinking, but risk can still get placed. Some lines, such as public D&O, umbrella, or excess casualty, overall policy limits offered and bound by carriers have contracted compared to previous years. Terms and conditions are becoming more difficult.
For example, carriers are demanding higher attachment points for umbrella cover. I see rates continuing to increase well into 2021. Loss costs are rising. Mid-size catastrophe events appear to be increasing. The U.S. hurricane season is as active as I can remember, and carrier investment returns are low and will likely stay that way for a longer period of time. That is before you tally up any COVID-19-related losses. I see a strong case for underwriters to push for even more rate. While some are calling it a hard market, I see this as an increasingly firm and difficult market as most risks can still get placed. Turning to exposure units and new and lost business trends, here's what we are seeing in our book of business over the last two and a half months.
First, policy cancellations from outright business failures are no higher than historical levels and in some places even lower than historical levels. Second, the net amount of endorsements, premium audits, and other mid-term policy adjustments have improved each month since hitting lows in April. We're at pre-COVID levels in July, August, and this far in September. We're also starting to see more favorable policy endorsement activity as customers restart their businesses. Third, unemployment levels have caused only a modest decline in covered lives in our customer base as employers are providing coverage during furloughs, and the unemployed seem to be purchasing COBRA. Fourth, client retentions are at pre-pandemic levels and in some cases better. Fifth, while non-recurring business sales are causing a point of organic headwind, other new business production is similar to prior years. I'll now foreshadow some punchlines you'll hear from the team today.
You'll hear Mike Pesch tell you our U.S. retail property casualty business is doing quite well with solid new business and retention and premium increases across most lines of business as rate continues to mitigate exposure unit declines. Tom Gallagher will tell you that our international PC businesses are holding up well too, with some outperformance in Canada and the U.K. New Zealand saw its biggest new business month of 2020 in the month of August, while Australia has been a little bit slower to recover. Joel Cavaness will highlight the strength we are seeing in our open brokerage wholesale intermediary Risk Placement Services. In addition, Joel's MGA and program binding businesses have also returned to growth off lower second quarter levels. New business and retention are similar, if not better than last year, and rate increases here are up double digits.
Bill Ziebell will then talk about our employee benefits and HR consulting business. Our clients' businesses are holding up okay. Client retention remains solid, but we are seeing a small slowdown in new business activity due to carrier premium holidays. Covered lives are naturally down, but even in the last few weeks, there are some green shoots. Finally, Scott Hudson will take you through our third-party claims administration business, Gallagher Bassett. The number of new claims arising from workers' compensation and general liability injuries have bounced off their April lows as customers have reopened for business. However, with many clients still not operating at full capacity, claim counts have not yet reached last year's levels. While 2020 revenues are still feeling pressure, confidence is high that our full year 2020 EBITDA will come in similar or even a little better than 2019 due to our cost control efforts.
Doug will then tell you what this means for our third quarter and give you our current view of what we think will happen in the fourth. Bottom line, we believe we can grow our combined brokerage and risk management segment EBITDA double digits over 2019 levels. Before I hand it over to our first speaker, let me give some thoughts on the merger and acquisition environment. With the pandemic, difficult market conditions, and clients wanting more expertise and data-driven insights, smart owners are seeking a partner that can help them and their clients with all the above. Throw on top of that the potential for changes in capital gains tax in the U.S., and we're seeing our pipeline of merger and acquisition opportunities grow over the past 75 days.
Due diligence continues to be slow. However, it feels like the dynamics are setting up for a more active finish to the year. When I look at our merger and acquisition pipeline, we have about 40 term sheets signed or being prepared, representing approximately $375 million of revenues. While we know that not all of these will close, we believe we'll get our fair share. Okay, those are my comments. From my vantage point, I believe we're executing extremely well in a very difficult environment. I'm proud of our colleagues' efforts and thankful for our clients' continued trust and our carrier partners' ongoing support. I'll stop now, turn it over to Mike Pesch, who's going to discuss our US retail PC Brokerage operations. Mike.
Thanks, Pat, and good morning, everyone. As Pat said, my name is Mike Pesch, and I am the leader of our U.S. retail property casualty brokerage operation. Today, my comments are going to focus on three topics. First, I'll provide you an overview of the business. Next, I'll discuss current PC market conditions, including the rate environment. Last, I'll conclude with some observations from July and August. Let me start by mentioning our U.S. retail PC operations. In 2019, we finished the year with almost $1.6 billion in revenues. That positions us as the third largest PC retail broker in the country, according to Business Insurance. We place more than $10 billion of premium annually through almost 200 offices and have approximately 6,400 employees, including about 1,700 in our centers of excellence.
Our operations are focused on middle to upper-middle market clients, including commercial enterprises, public entities, and not-for-profit businesses. Typically, we are placing between 100,000 and 2.5 million of premiums for each of our clients. We are generating about $10,000-$250,000 of annual revenue per customer. Our clients range from middle-market businesses to large risk management accounts, but we also have a decent-sized small commercial personal lines and affinity customer practice. We find that our core middle-market clients typically do not have a dedicated risk management team to buy or handle their insurance coverages. That is important because those businesses align with our value proposition. They have needs for an outsourced risk manager versus someone who is there exclusively to place coverage on their behalf. Gallagher's value proposition is called Core 360. It is our approach where we take and evaluate our clients' risk management program.
We focus on six key cost drivers, which are program structure, coverage gaps, uninsurable losses, loss prevention and claims, contract liability, and of course, premium. Core 360 embeds our organization inside the client's business and highlights how we are different as a broker and as an outsourced risk manager. That resonates well with our clients looking for a holistic risk management solution and advice. Our retail brokerage operations are organized around about 30 niche practice groups, specific industries in which we have developed depth, expertise, and specialized insights. We see these industry verticals as a competitive advantage, allowing us to better understand the unique risk characteristics of our clients' business and provide value-added products and services to those industries.
Our niche leaders are there to support our producers and to make sure that we're addressing specific risks and challenges that those industries are facing on a day-in and day-out basis. For example, take a religious institution client. You simply can't handle an account like this if you don't know anything about the distinct needs and risks of a not-for-profit faith-based organization. We retain customers and drive new business over the long haul by providing highly tailored coverage and risk solutions. That level of specialization and expertise is nearly impossible for smaller brokers to match. That is important because, as Pat said, our primary competitors are regional and local brokers. We know from our data that about 90% of the time we're competing with brokers who are smaller than us. Our superior competitive positioning and differentiated value proposition has led to really nice organic growth and margins.
Over the past few years, organic growth has been around 5%, and our retention has consistently tracked in the low to mid-90% with double-digit new business production as a percentage of our trailing revenue. Better yet, we are growing with very high-level profitability. Adjusted EBITDA margins are around 30% as our business capitalizes on scale and the utilization of our centers of excellence. Moving on to mergers. As Pat mentioned, M&A is an important part of our growth strategy. Our sweet spot is firms generating less than $10 million of annualized revenue. Our number one priority is getting the culture right. We do not rush. We take our time looking for the right fit and the right partners. Teams that want to be with Gallagher for the long term.
Outside of the Gallagher culture, what really seems to resonate with potential merger partners are the tools, expertise, and resources that we can provide to them and their producers. That is even more crucial in challenging times like today. Most of our merger partners are the result of relationships that we have built at the local level, so we know these entrepreneurs very well. Whether it is through our 10 regional presidents or 200 branch managers beneath them, our dedicated team of M&A professionals, this is how we build relationships. Looking forward, we have a growing M&A pipeline here in the U.S., and we continue to talk to new firms interested in joining a strategic like Gallagher every week. We saw a nice uptick in potential opportunities in July, and that has continued into August.
The tough PC market conditions and the potential for an increase in capital gains tax next year, we think the pipeline will grow, and a number of completed mergers is likely to accelerate as we head into year-end. Operationally, I believe our business is in great shape. We have devoted a significant amount of time, effort, and resources over the past decade and a half focused on streamlining workflow and standardizing processes across offices, moving on to a common agency management system and leveraging our centers of excellence. As we enter the six-month mark of the pandemic, effectively all of our U.S. retail colleagues have been working from home and have fully adapted, including our production talent. Let me give you some examples. Our producers are leveraging more online events like webinars, town halls, and product discussions to generate new client leads.
Gallagher Drive, our data and analytics platform, where we can see what types of coverages clients are buying, how much they're buying, and what they're paying for, is being showcased more and more as a key differentiator. We continue to win new business by working the phones. Now we are seeing entire engagements from initial pitch to close being done in a virtual environment. What's happening here is that we are able to bring our subject matter experts at the point of sale. Prior to COVID, our 30 niche experts and 500 or so product experts would spend hours driving and flying to product prospect meetings or attending dinner pitches. With our prospects knowing that it's unlikely we'll be coming to visit them in person, we actually have a better shot at getting our best athletes in front of our prospects.
We can pull experts from anywhere across the organization, anywhere across the globe, and get them in the game, get them at the field at the right time, whether it's the first pitch in a proposal or during the late innings to help close. As an example, we recently competed on a large placement for a multinational corporation where we were able to pull from our pool of niche experts across the globe. Our pitch included teammates from the U.K., our other international operations, as well as three different domestic offices. It was all done via a virtual environment, which we were also able to demonstrate our global data and analytics capabilities through our Gallagher Drive platform. Most of our smaller competitors, frankly, lack the expertise, data, bandwidth, and culture to bring all of these capabilities together.
It's really exciting for me to see our entrepreneurial culture shine bright during the pandemic. Now moving on to my second topic, the market and the pricing environment. I would continue to describe the U.S. market as firm, with tightening terms and conditions and capacity in certain lines becoming difficult. Overall, second-quarter price increases in the U.S. were close to 7%, with strength in property, professional liability, and umbrella. Thus far, here in the third quarter, we are seeing even greater increases. For example, property is up 13%, professional liability is up 11%, commercial auto up 6%, casualty up 5%, and like Pat said, even workers' compensation is up about 1%. Despite these increases, it's important to recognize that price increases won't all show up in our organic.
Remember, our job as brokers is to help our clients mitigate increasing prices by shopping their coverages and also showing them how to tailor their programs, such as increasing deductibles or reduced limits to ensure the risk management programs fit their budgets. Finally, I'll conclude with some specific thoughts from July and August organic growth and EBITDA, starting with organic. About 5.5% in the first quarter of 2020 and 4% in the second quarter. Based on what we are seeing thus far, I think the third quarter organic will be similar to the second quarter. What gives me confidence is the following. New business is running very similar to 2019 levels, which was a record year for us. I think we have benefited from the Gallagher sales culture and a flight to quality.
Retentions are also very similar to last year, but a half point lower when factoring in non-recurring policy activity. Midterm policy adjustments, including cancellations, premium audits, and other endorsements, are running similar to pre-COVID levels. Most of the midterm adjustments are coming from negative policy endorsements as companies reset their coverage rather than canceling coverages entirely. We also continue to see very limited full cancellations. Actually, cancellations have improved slightly over last year's third quarter, so our clients are holding up well during these challenging times. As we look at our renewals, premium dollars, which capture both rate and exposure, are higher relative to last year. To the extent we are seeing exposure units decline, rate is offsetting all of that decline. On our total renewal book in July and August, almost every major line of business is showing year-over-year increases in premium.
The lone exception of that is in workers' compensation, which rates are modestly positive, but exposures are down relative to 2019, leading to premiums being down low to single digits. Even that headwind is relatively small, since less than 10% of our $1.6 billion of revenues comes from workers' compensation. In terms of EBITDA, as you saw in our second quarter earnings release and based on past comments, we continue to save on operating expenses. Savings that are coming really from accelerating our cost containment and automation projects that were in flight prior to COVID, natural contraction of travel and entertainment expenses, and we have made some adjustments to our workforce, which is mainly the result of voluntary attrition. That extra workload is being shifted mostly to our centers of excellence.
These savings should more than offset the slight low in third quarter organic, so we would expect to see our EBITDA growth be better than pre-COVID levels. In sum, despite some of the obvious headwinds, we really feel good about our business. Price increases are gaining momentum, exposures are off the lows, and our offerings, value proposition, and competitive positioning have never been stronger. Most importantly, our clients continue to weather the storm brought on by the pandemic. I'm confident that we'll exit these challenging economic times well-positioned, and I remain excited about our future.
Okay, I'll stop now and turn it over to Tom Gallagher, who is going to discuss our international PC brokerage operations. Tom?
Thanks, Mike, and good morning to all of you on the call. This is Tom, and I lead our global property and casualty business.
Mike took you through the domestic side, so today I'll tackle the international portion, beginning with an overview of the business. Then I'll speak to our recent performance and the pricing environment. Finally, I'll close with some data points from the third quarter thus far and an early look at the fourth quarter. Let me start by giving you a breakdown of the business. We finished 2019 with approximately $1.6 billion in international P&C revenues, and we placed more than $10 billion of premium on behalf of our clients through about 300 offices and 9,600 employees around the world. We have a diverse group of businesses internationally, and while we operate in wholly owned or substantially owned brokerages in nearly 50 different countries and have client capabilities in 100 more, our business is predominantly in the U.K., Canada, Australia, and New Zealand.
Like the U.S., we are focused on middle-market retail clients, and we too have small business, high-net-worth personalized, affinity, and a really strong large-account risk management business. We also have a leading London specialty broker and a fast-growing reinsurance brokerage business, which will be rebranded from Capsicum Re to Gallagher Re early next month. Let me break down our revenues by geography, starting with the U.K. We are a top five retail broker in the U.K., generating about $400 million of revenue annually. Like our U.S. counterparts, we utilize a niche specialist network and have more than 130 offices in the country, mostly in smaller cities. We act as both a retail and wholesale broker within our London specialty and reinsurance operations, representing another $400 million of annual revenue. Moving to Australia and New Zealand, combined, we generate about $350 million of revenue annually.
We are the largest retail broker in New Zealand and a top five retail broker in Australia. Lastly, we are a leading broker in Canada, generating nearly $200 million of revenue during 2019 and operating in seven provinces. We are building our international business following a similar path paved by the U.S.. We are leveraging best practices to drive our global retail growth, sourcing and integrating M&A opportunities, and using our operational excellence to capitalize on scale advantages without geographical constraints. We have found in many instances what our U.S. team is doing can be tailored, applied, and delivered to our retail clients anywhere around the world. For example, outside the U.S., we have implemented Core 360 as our global go-to-market strategy and value proposition. It goes the other way as well. Our U.S. operations are adopting creative sales ideas and coverage specialisms from their international colleagues.
Our capabilities, insights, thought leadership, and cross-border or cross-divisional content, collaboration, and webinars give us an advantage over smaller brokers, the ones we compete against most of the time. These firms can't match our offerings. Our culture is solid and resonates across borders too. Whether in the U.K., Canada, Australia, or New Zealand, or one of our 40-plus countries in which we operate, our Gallagher sales culture is alive and well. Our colleagues have quickly adapted to the new work environment, and our culture is guiding our producers as they continue to win new business. Shifting to mergers and acquisitions. Our culture, support tools, access to data, analytics, and specialisms are resonating with international entrepreneurs looking to take their firms to the next level. Partners who are not satisfied remain the same. They want to be able to support their clients and grow their book of business.
Many times, they're looking for long-term career paths for their people. Partnering with Gallagher can offer them all of these opportunities, and we continue to cultivate opportunities around the world. Moving to organic. Margins in the pricing environment. Let me walk you around the world. Prior to COVID, our U.K. retail organic was running above 4%, and adjusted EBITDA margins were pushfive ng 25%. Exposure growth was modest, while the P&C pricing environment was improving with increases up around 4%. 2020 first half organic is running a little more than a point below pre-COVID levels, while EBITDA margin has improved with some of our cost savings. On the specialty side, pre-COVID organic growth was high single digits, and margins were approaching 30%. Pricing across most specialty classes was up at least five-10%, and rate increases continue to accelerate.
First half 2020 organic is a little lower, while margins have improved. Canada is having an excellent year with first half 2020 organic in the mid-single digits and margins around 30%, similar to pre-COVID levels. We're seeing favorable pricing with rates up, high single digits across most classes, driven mostly by property and commercial auto. Moving to Australia and New Zealand. First half 2020 organic was in the low single digits, and margins were hovering north of 30%. Relative to pre-COVID levels, organic is down from the 7% we reported last year. Most of the difference between years is market-driven. Australia and New Zealand were seeing rates much higher in 2019 than we are seeing today, which helped growth last year. EBITDA margins here are nicely above 30%. Let me finish up with some third-quarter observations. Overall, I'm seeing new business a point lower than third quarter last year.
Retentions a point better and no significant impact for midterm policy adjustments. By geography, our Canadian business is a bit better, with strong new business and stable retention. It makes sense because pandemic-related restrictions are loosening, and the economy appears to be rebounding. The U.K. economy is still fragile, but the retail business here is showing better than average retention, while new business is off a bit. When I look at our London specialty operations, I'm seeing new business down some, but offset by continued strong retention levels. Restrictions in Australia remain tight, so the economy has been a little slower to recover, and new business is trending a little below historical levels. Finally, New Zealand. The first country to be back to normal, with the exception of a hiccup in late July and early August, new business and retention metrics have improved.
I have really got to give it to our team in New Zealand because in August, they posted the biggest new business month of the year. With strong new business, solid retentions, and positive renewal premiums, overall, I see third quarter organic around 3%. If current positive trends persist and economies remain open, we are hopeful organic might be even a little better in the fourth quarter. Focusing on renewals outside the U.S., so far in the third quarter, price increases are offsetting exposure declines. Canada is seeing the highest premium changes driven by property, which is seeing significant rate and very little negative exposure changes. Australia and New Zealand premiums combined are also higher year-over-year, driven by property. However, commercial auto are close to flat as price increases in these two lines are just about offsetting exposure declines.
Moving to the U.K., we are seeing renewal premiums up in property and casualty lines, offset by negative premium changes in commercial auto and marine. Overall, closer to flat with rate increases once again, broadly offsetting exposure declines. In terms of EBITDA, we're seeing savings on our operating expenses, letting attrition tighten our workforce ranks, and continuing to shift work into our centers of excellence, which now have over 1,000 colleagues supporting the international P&C business in our Gallagher Service Center. We feel pretty good about the market environment. Rate is mitigating exposure declines in most lines of business and geographies. Exposures are recovering off the lows as economies reopen and midterm policy adjustments and cancellations are not significant. Even more encouraging is that our producers are winning new business while servicing existing clients without any disruptions.
Bottom line, I am very pleased with where our international operations are today and optimistic about the future. Okay, I'll stop now and turn it over to Joel Cavaness, who's going to discuss our domestic wholesale brokerage operations known as RPS. Joel?
Thanks, Tom. Good morning, everyone. As Tom said, I'm Joel Cavaness, and I lead our domestic property casualty wholesale intermediary, which trades under the name of Risk Placement Services, or RPS for short. My comments today will follow the same format as all the previous speakers. First, I'm going to start with an overview of our business. Then I'm going to provide some comments on the property casualty pricing. Third, I'll wrap up with some observations related to our third quarter and a sound bite on our fourth quarter.
As you recall, RPS started from scratch in 1997 with just four employees, and since that time, we've grown to the fourth largest wholesale broker in the U.S.. We have over 2,300 colleagues. We finished 2019 with approximately $425 million in annual revenue, and we place about $4 billion on behalf of our clients. Remember, as a wholesaler, our customer base are not businesses themselves, but rather independent agents and brokers that need our capabilities, our products, and our carrier relationships. About 25% of our business comes from the Gallagher retailers from Mike's Group, while the remaining 75% comes from other non-Gallagher agents and brokers across the country. Let me walk you through our key businesses, starting with open brokerage.
Open brokerage is basically helping a retail broker who's having a difficult time placing a line of coverage or needs access to a specialty coverage or a market that they don't have. In this case, we go to the market and we negotiate on behalf of the retailer and their client. It is very specialized, and it can range from hard-to-place property like earthquake or flood or to casualty like long-haul trucking or liquor liability or many other lines. Many times, these placements are further complicated with multiple layers and multiple carriers involved. Next, we have our MGA and our program business. Here we underwrite, we price, we bind, we collect the premium, and we issue the policy, but we don't take any underwriting risk. We have about 40 programs focused on specific types of entities or coverage.
As an example, our commercial lines programs range from public entities to country clubs to amateur sports. Our personal lines program includes non-standard auto, manufactured homes, low-value dwelling, and the like. Finally, we provide standard lines aggregation, where we provide retail agents access to admitted products from various carriers. For example, a local agency in Maine might be too small to get a direct Chubb appointment. However, the agency can still access Chubb's products through us. In essence, it gives that Maine agency more products for its customers. Our goal continues to be the recognized leader in intermediary market by providing a very wide range of services across a very large distribution platform. We, of course, compete with many different wholesalers, and ultimately, we win because of our speed of response, our ease of doing business, our product breadth, and the strength of our carrier relationships.
In this environment, as you heard Mike say, rates are increasing, capacity is shrinking, and terms and conditions are becoming more difficult. That environment is making RPS a lot more popular with retailers as they need our help with their placements. This is leading to more opportunities and submissions to us. For example, our e-commerce platform, which offers our retailers nearly 20 different products, is seeing tremendous growth in submissions and revenues. While opportunities are increasing elsewhere, our execution remains unchanged. We're supporting our clients by finding markets, designing programs, and importantly, maintaining fast turnaround times. While how we transact and conduct business has been different over the past six months, we do continue to win new business and retain our customer base. Pre-COVID, our open brokerage operations were posting nearly double-digit organic growth. Programs in our aggregation business were in the mid-single digits as well.
Profitability was very solid with margins in the 20s, and we too have been able to further leverage our centers of excellence with almost 500 associates supporting our wholesale operations today. We're also a seasoned acquirer. In fact, RPS has completed over 50 acquisitions since 2000. Most of our activity has been focused around the MGA and program space, largely because that's where the opportunities are. There are thousands of MGAs in the U.S. We are focused on partners that fit us culturally, that are additive to our business, and then those that can provide us with additional M&A opportunities. These mergers choose to join us because they see that together, we can make investments in data and technology and certainly open doors to our already established relationships where we do business with over 13,000 retailers.
That distribution, combined with the current E&S market conditions, and of course, the potential changes in capital gains, is driving more M&A opportunities here in the third quarter, and I think that would be a very active close to the year as well. Moving on to the pricing environment, wholesalers tend to see rates move a little earlier and more sharply than retailers. Add at least a couple of points to what Mike has seen. Our data is showing overall rate approaching 11% in July and August. This includes double-digit increases in property, professional liability, excess casualty, while workers' comp is generally about flat. We're seeing stronger rate increases for small business, particularly in our program and binding operations. I think this is stemming from an increase in mid-size catastrophe events so far this year.
For example, Hurricane Laura should be a modest industry loss, say about $10 billion or so, but our small business customers have incurred more than 1,000 claims from this storm alone, which is very supportive of continuing firming rates. Continued social inflation and litigation financing are also altering the U.S. marketplace. Capacity continues to tighten, specifically for umbrella and professional liability. Fewer carriers are willing to quote, and those that do quote are reducing the limits that they provide. We are already hearing of expected reinsurance increases at one-to-one renewals and that reinsurers continue to move to excessive loss positions and off of large quota share agreements. Overall, it is a pretty difficult market out there. Let me give you a sense of what we are seeing here in this quarter. For our renewal business, premiums are up year-over-year through the first two months of the third quarter.
Premiums are up double digits within our brokerage business, which would suggest pricing is exceeding exposure change by a pretty wide margin. On the program and business and binding side, rate increases seem to be just about offsetting exposure changes. Not a lot. They're just covering the decrease in exposure units. We're seeing the largest premium increases in property and professional liability where rates are strong and exposures aren't shrinking. On the other hand, modest rate increases in workers' compensation aren't offsetting the exposure declines that we're seeing. Comp premiums are down year-over-year, but even for us, workers' compensation revenues are only a couple percent of our businesses at most. I talked in June about how I view trends in commercial trucking space as a leading indicator for future economic activity.
In April and most of May, when the economy was relatively effectively shut down, many trucks were sitting idle, vehicles were being removed from policies, and weak driver demand resulted in significant declines in spot freight rates. From March to May, our commercial trucking revenue underperformed other areas and was down about 10% during that three-month period. However, we did begin to see these trends reverse in early June, and sitting here in mid-September, demand and freight rates have fully rebounded, and we're seeing trucks being added back to policies. This is translating into a very nice lift in our commercial trucking revenues as well, with mid-single-digit revenue growth from June to August over the same period of last year. I think this bodes very, very well for future economic activity and into the fourth quarter.
A few more observations regarding what we're seeing so far in the third quarter. New business is up a little bit over last year with similar trends in brokerage programs and binding. Retention rates are also up about a point relative to last year. Our midterm adjustments are similar to pre-COVID levels, and even full cancellations are actually trending better than last year. We continue to be very encouraged by this dynamic since companies are not going out of business. When it comes to EBITDA, cost savings combined with our organic is leading to strong EBITDA growth over last year. Like other speakers, we too are seeing natural savings from lower travel and entertainment while further utilizing our offshore centers of excellence to counterbalance attrition. Overall, I think the business is in great shape. The brokerage business is growing nicely, and the market environment is conducive for further opportunities.
While growth in the MGA and programs business is still lagging open brokerage, it's been catching up as we move through the third quarter. If commercial trucking is the economy's canary in the coal mine, then I'm even more encouraged. Needless to say, I feel good about our business, our competitive position, and I'm very optimistic for our future. I'm going to stop now, and I'm going to turn it over to Bill Ziebell, who's going to discuss our employee benefits consulting ope rations. Bill?
Thank you, Joel, and good morning, everyone. I am Bill Ziebell, and I lead our employee benefits and HR consulting business, also known as Gallagher Benefits Services or GBS. My comments today will follow a similar structure.
I'll first provide an overview of GBS and then give you some takeaways from what we have seen so far in the third quarter and some early thoughts on fourth quarter. GBS began in the mid-1970s and has grown to the fourth largest benefits and HR consulting firm in the world, generating more than $1.2 billion of revenue during 2019. Our 4,400 colleagues operate out of more than 100 different locations spread across the U.S., the U.K., Canada, and Australia. However, about 90% of our revenues are domestic and 10% are international. We sell traditional medical, dental, vision, and voluntary insurance products that employers provide to their employees. We also advise on overall plan design, financial projections of these plans, and potential funding alternatives. That accounts for 70%-75% of our revenue.
The other 25% comes from HR and compensation consulting, pharmacy benefit management services, retirement plans, executive benefits, and other services that help employers address their human capital needs. We target middle-market corporations, which we define as businesses that have somewhere between 100 and 5,000 employees. Like our retail P&C counterparts, we provide client resources and capabilities that most smaller competitors just do not have. We also serve larger corporate enterprises by offering a fresh alternative to some of our bigger competitors. Earlier, you heard Mike and Tom talk about Core 360, their value proposition to analyze and address clients' total cost of risk. On the benefits side of the business, we have Gallagher Better Works, which explores all the levers that an employer has to attract, engage, and retain talent in a sustainable cost structure, levers that few of our smaller competitors can touch.
Gallagher Better Works centers on the full spectrum of organizational well-being, how to maximize a workforce by investing in physical and emotional health, financial well-being, and offering career growth opportunities. We tailor solutions that address and maximize each of these, and clients recommend us for our thought leadership, strategic thinking, and the overall value we bring to the table. Our pre-COVID surveys showed that attracting and retaining talent was the top priority for most employers, while lowering costs was secondary. Interestingly, and maybe not surprising, our 2020 benefits strategy and benchmarking survey was published just last week and showed business continuity and cost control jumping ahead as the top objectives of most businesses in the current environment. While our goal is to help employers maximize productivity of their workforce, we also offer strategies to lower costs.
Our pre-COVID benefits business was growing mid-single digits organically with mid-90% retention and high single-digit new business growth. Like our property and casualty businesses, it was growing with a high level of profitability. Adjusted EBITDA margins were in the high to mid-20%. We are also actively engaged in mergers and acquisitions, completing 15 acquisitions during 2019. Benefits and HR consulting firms want to join Gallagher because we have what everyone wants: resources. We have niche expertise, we have content, we have marketing, and we have superior technology, all of the tools necessary for benefits professionals to succeed. Our pipeline of potential mergers is growing, and I'm hopeful that we'll complete a handful of additional mergers in the last four months of the year. Operationally, GBS continues to perform very well.
Nearly all of our colleagues are still working from home, and our people have settled into their new work environment. You heard Mike talk about how doing business virtually has allowed his team to deliver even more expertise at the point of sale, and we are having the same experience. I could share a lot of stories, but here's one for you. Just last week, I listened to four of our young producers who were able to open new doors to significant opportunities by engaging with prospects in a virtual environment and then pulling in our niche and practice experts to differentiate ourselves going up against smaller competitors. These folks just can't compete against these capabilities because they just don't have them. I mentioned our 2020 benefits survey earlier. It is one of the largest surveys of its kind in the U.S. and includes responses from nearly 4,000 organizations.
While only a week removed from its publication, we've already created nearly 90 million impressions. The findings have been downloaded more than 3,000 times, and we have numerous new leads and meeting requests from prospects. You can find an executive summary on our website at ajg.com/us. I think you'll find it interesting. Our team also has been hosting a series of monthly town hall discussions, bringing our expertise and thought leadership front and center. These town hall webinars have drawn considerable interest with nearly 10,000 clients and prospects participating. The discussions have ranged from our multidisciplined return to the workplace webinar, which I did discuss last time, to topics like how to tackle open enrollment in a virtual setting or how to balance cost controls and workforce needs.
Efforts like these further distinguish Gallagher from the smaller brokers and consultants we are competing with day in and day out, and we continue to like our new business chances in this environment. Let me finish up with some thoughts on July and August. I'll start in the U.S. Again, that's about 90% of our revenue, and around 80% of that is traditional medical, dental, vision, and voluntary insurance products, all of the typical coverages you get via your paycheck from your employer. Headline unemployment remains elevated relative to historical levels but has improved from the spring peaks. Our business has been a little more insulated from the deterioration in domestic labor markets, so let me give you some factors that are behind that.
As we have said in the past, unemployment figures include workers that have been furloughed, but the vast majority of furloughed employees continue to receive their benefits through employer-sponsored plans, so they are still covered lives. Second, if an employee is let go or terminated through their purchase of COBRA, they also remain on their old employer's health plan, again, still a covered life. Third, our business mix. We tend to operate at the higher end of middle market, and we aren't overweight in hard-hit industries like retail, restaurants, hotels, and hospitality. Our business includes more resilient employers like higher education, public entities, and religious institutions. A couple more observations worth making. Similar to last quarter, I'm sorry, we are not seeing many companies go out of business, so our clients' businesses are holding up, which is encouraging.
Second, our client retention remains solid in the mid-90% and very similar to pre-pandemic levels. We are seeing some carriers give premium holidays, which has reduced employer shopping and helped retention but has made new business a little more difficult. We have also found that employers who are treading water and thinking about potential workforce reductions just aren't as open to new ideas or projects to attract and retain talent. Shifting to the other 20% of our U.S. revenues, which is our fee-for-service business, these in aggregate have been holding up better, but underneath that, it's a tale of two cities. On the one hand, we are seeing projects and other one-off engagements being delayed. On the other, our executive benefits and pharmacy benefit management businesses continue to do quite well, which is helping bolster this portion of our operations.
We think third quarter organic will be much like our second quarter in the U.S., down low single digits, and that trend will likely improve in the fourth quarter since we think labor markets are poised to recover somewhat, and we are beginning to see some new business opportunities in our compensation consulting business. In fact, new business sold in August was similar to January and February levels. Now moving outside the U.S., which is about 10% of our total revenues. In the U.K., we are forecasting second half organic to be flat to down slightly, leading to a full year revenue decline in the mid-single digits. In Canada, some new business wins during the second and third quarters should lead to flat to slightly positive organic for the next couple of quarters and full year.
In Australia, only a portion of the business is headcount-based, so unemployment levels play less of a role. Thus, we are expecting growth for the third and fourth quarters. When I combine domestic and international, I think resilient client retention offset by a challenging new business dynamic, continued softness in covered lives, and some delayed projects will cause our organic to be negative by a point or two here in the third quarter. As of right now, fourth quarter organic feels a little better than that, with unemployment trending a bit better and some of our practice groups seeing some green shoots. However, I will say there remains a lot of uncertainty. In terms of EBITDA, even with slightly negative organic revenue, our workforce and operating cost savings positions us to produce year-over-year EBITDA growth.
Regardless of the ultimate shape or timing of the recovery, our people remain committed to helping clients navigate the current challenges. The level of dedication, creativity, and energy the team has shown over the last six months makes me very excited about our future. All right, I'll stop now and turn it over to Scott Hudson, who's going to discuss our risk management segment, also known as Gallagher Bassett. Scott?
Thanks for the introduction, Bill, and good morning, everyone. My name is Scott Hudson, and I lead Gallagher Bassett, which is our third-party claims administration business, and is shown in our financial statements as our risk management segment. This morning, I'll provide you an overview of GB's business, give some comments on what we're seeing in the third quarter, and then finish with how we see the overall year playing out financially.
Gallagher Bassett, or as I say, GB for short, was formed in 1962 by Jim Gallagher and Sterling Bassett, and today we are one of the world's largest P&C third-party claims administrators. In 2019, we generated over $800 million of revenue. About 83% of that is domestic, 17% international, and the international is mostly in Australia with sizable operations in the U.K. and Canada. We've got 5,600 employees, almost all of whom are now working from home, although in our case, many of those worked from home prior to COVID. We don't take underwriting risk, but rather adjust claims for our clients. In fact, we handle about a million claims per year and pay out well in excess of $10 billion annually on our clients' behalf.
This would make us about the eighth largest P&C insurance company in the U.S. if we were measured by total claims paid, which gives you a sense of kind of our overall scale. 70% of our revenue is from workers' compensation, 20% liability, and 10% property, although the property is, for the most part, very little storm-chasing activity. We also, with some of the efforts more recently put in place, have nice specialty offerings for lines like product liability, medical malpractice, environmental, professional liability, and cyber. Today, we're able to talk to any one of our clients about a well-rounded set of services for a large portion of their exposures that they would have in their business. As I've said in the past, we serve four distinct client segments.
The first one, which is our biggest, is large commercial clients who self-insure or have deductible programs and then outsource to Gallagher Bassett the claims resolution process. There are public sector clients, which includes local municipalities, school districts, state entities, and some federal governments. An example of that would be a significant portion of our clients in Australia being the state-sponsored work comp schemes. Third, we have a number of alternative market or group captive clients. These are generally pooled entities that utilize us for their claims infrastructure. The fourth segment is insurance carriers. I've talked about this a lot.
This is a growing client segment for us, and as we're helping more and more carriers with outsourcing a portion of their claims handling business, clients choose us because of our expertise that we deliver, because of our expertise and the fact that we deliver what I refer to as the best claims outcome. I think it's important to understand that the best claims outcome is not always the lowest way to handle or the lowest cost to handle a claim, and what that means varies by client. When you're dealing with a specific insurance carrier, a specific commercial entity, they're going to want claims handled a certain way given their overall value proposition and how they face off with their employees. We do customize our services to align with clients' expectations, whether that be back to work sooner, brand protection, customer loyalty, or overall lower cost.
That's the way we add value to our clients. Our revenue retention generally runs in the mid to upper 90s, so the business is very sticky, and that stickiness hasn't changed with the pandemic. In fact, our current retention levels are similar to historical levels. New business generation tends to be lumpier, varying from quarter to quarter because many of our prospects have very large volumes. As a result, over the last three years, our quarterly organic can bounce somewhere between 2% and 10%, but annually, we end up running around 5% or a little bit over. We were running about that in 2019 and in the first quarter of 2020 pre-pandemic. In the second quarter, organic was down almost 10%, and it looks like hopefully that will be the bottom.
Later on, you'll hear me say organic should improve to about negative 6 in the third quarter and perhaps a little bit better in the fourth, in part due to our strong new business performance. M&A is also a growth driver at Gallagher Bassett, but not to the same extent as the brokerage business. Our industry is already relatively highly consolidated, and there are a few large customers and a few large customers that are using local TPAs. M&A, just to add scale, that's not the way we approach it. We have plenty of scale in our core products and services and geographies, but rather we look for highly specialized and complementary claim adjusting and risk consulting entities that give us a new capability, a new product, or deeper technical expertise.
At the end of the day, my team and myself always ask a very simple question: would this acquisition help us deliver better claim results for our clients? During 2019, we did complete three acquisitions, all of which were added to, all of which either added or expanded our capabilities, and we do have a nice pipeline of potential opportunities, and we could actually see a couple of the smaller ones completed before the end of the year. Over the last several years, GB's margins have been in the 17-17.5% range, which we believe is industry-leading. Even at that level of margin, we were still making substantial investments in order to improve our products, platform, and service levels.
I'm actually happy and very pleased to note that we just received this past week the 2020 Business Insurance Award for InsureTech Initiative of the Year, specific to our clinical guidance and TQI, or Treatment Quality Index, capability. This new tool measures the overall quality of care, but more importantly, what it's doing is it's ensuring an injured worker gets the best care by keeping the claim on track. As I talked about in our last IR day back in mid-June, our financial goal had shifted after the pandemic given revenue contraction. We're confident that they'll rebound over time, so our goal here in 2020 is to ensure that our EBITDA doesn't slip. Our target is to generate full year 2020 adjusted EBITDA similar to or slightly better than last year's EBITDA of around $150 million. How are we doing against that goal?
Through the first six months, EBITDA is only down $2 million, even while organic is backwards more than 11. As I sit here today, I'm confident we can make that up and then some in the second half. This performance is a direct result of our cost containment efforts. In the second quarter alone, we saved close to $14 million by proactively managing our workforce and implementing expense controls. We rebalanced claim loads across adjusters to ensure we don't negatively impact service to our clients, and at the same time, we reduced discretionary spend, changed many of our procurement strategies, limited the use of outside consultants, and delayed non-essential projects. I've got to give it to the team. I think we're doing an absolutely amazing job. That is what we delivered in the first half of the year.
Let me talk to you or walk you through what we're seeing thus far in the third quarter. First, client retention. Based on client count, retention continues to trend at historic levels. As we discussed last quarter, our clients are experiencing business slowdowns, many of them, but we still haven't seen any significant permanent closings. Secondly, new business. We continued our new business momentum in July and August, adding a couple of new clients to our roster. New business sold this year remains well ahead of where we were this time last August. The third input is claim arisings. Clients continue, as I've said now for a few months here, clients continue to experience weaker year-over-year business activity, and unemployment levels remain elevated. Work comp, auto, and general liability claim counts remain under pressure.
We saw consistent monthly claim count increases as the second quarter progressed, and that trend of improvement continued into July, but flattened a bit in August, which makes some sense given the fact that businesses aren't necessarily continuing to ramp up with some of the restrictions in place in the various states. Let me give you a couple of examples. Take a restaurant or a movie theater. While these clients have reopened for business, they're still not operating at full capacity. They may be at 50% capacity due to social distancing, so they really don't have an opportunity to increase activity much beyond that point. I think it's just going to take some time for us to see another large step up in new claim arisings across many of these industries.
With that said, there are still a lot of our clients that are in the industries that are early on in their journey off the bottom, so we should continue to see a little bit of an uptick in claim activity moving forward. While trends are encouraging, let me break down what this means for the third quarter. Starting with the $210 million we posted in the third quarter of 2019, a little more than half of that revenue represents our Australia-based public entity business, our US specialty liability business, and U.S. cost plus contracts, which all have remained resilient over the past six months. We do not see any major movement there. Recall that these revenues are generally not tied directly to claim volume, and a portion of these clients have chosen not to reduce the level of resources that they have deployed with us.
A good example of that would be our Australian public entity businesses. The next largest piece of our revenue is our complex higher fee claim business, which represents approximately $90 million of revenue. Non-COVID new arising claims continue to improve but are still down a little more than 10%. However, we do have COVID-related claims continue to be reported, which does offset that decline a little bit. If you take those two things together, I think we will be down approximately $10-12 million in revenue in the third quarter related to this type of claim. Finally, we have our high-frequency low disparity claims, which remain off about 30%. However, this is the smallest portion of our revenue, about $10 million on a quarterly basis. We expect another $3 million headwind from these type of claims in Q3.
When I add all these up, I see somewhere around a $13 million organic headwind in the third quarter, or let's call it about negative 6% organic, which is really a nice rebound off of our negative 10% in the second quarter. If we save another $14 million in expenses like we did in the second quarter, we can offset that entire drop. Looking beyond the third quarter, we are optimistic that we will see further revenue improvement. Here's why I'm so excited. First, we are selling new business. I think our sales professionals are becoming more and more effective in telling our story, and the current COVID environment has not restricted our ability to talk to prospects or demonstrate how we can deliver superior claims outcomes.
Second, client retention, as I've said, is remaining at historical levels and reinforces that we continue to deliver outstanding service and industry-leading claim outcomes for our existing clients. Third, we are seeing an uptick in claim activity across certain pockets of our business, and our expansion into carrier outsourcing, specialty liability claim handling, and environmental health and safety have all proven to be excellent strategic moves. When workers' comp and general liability claim activity fully recover, I think we'll have a nice tailwind from these growing practice areas. Fourth, our relentless focus on innovation, highlighted by our recent InsureTech Initiative Award for clinical guidance and TQI.
There are many examples like this brewing within Gallagher Bassett that further separate our offerings from the competition and will enable us to outpace our competitors when it comes to delivering superior claim outcomes and improve the overall efficiency of our claims resolution managers. In terms of profitability, we are proving our organic revenue clients can be offset by our expense savings and workforce optimization efforts. As I mentioned before, EBITDA was down slightly through the first six months of the year. However, I'm confident that we will make up a small portion of that here in the third quarter, let's say $1 million or so, and even do better than that in the fourth quarter, leading to a full year 2020 EBITDA similar to or even a little bit better than 2019.
To quickly wrap it up, I am encouraged by the uptick in claim activity in the recent months, our new business production, and the relative health of our clients and our competitive positioning. The team is executing on all of our financial targets while continuing to deliver superior claim outcomes. Once claim activity rebounds closer to pre-COVID levels, I am highly confident we are poised to return to historic and most likely even higher levels of organic growth year in and year out. Okay, I'll stop now and turn it over to our CFO, Doug Howell. Doug, take it away.
All right. Thanks, Scott. Good morning, everyone. Thanks for joining the call. I hope you found the last hour or so of today's commentary helpful, and hopefully, it will help you have a better understanding of our various businesses, their strategies, and how we're executing in the current environment.
Today, I'm going to recap what was said about our third quarter, give some early thoughts on our fourth quarter. I'll point out a few small items on the CFO commentary document we post on our website, then wrap up with some comments on cash and liquidity. All right. Let's first talk about our view of third quarter organic. Let me recap. You heard Mike and Tom say that our global property and casualty businesses are holding up really well. New business and retention levels are similar to pre-COVID levels, and in most geographies, premium increases are positive, so price increases are covering exposure decline. Perhaps the US is faring a little better than international, but all told, it's looking like around 3-4% organic growth here in the third quarter for those businesses.
Joel then said that our open brokerage wholesale operations continue to post excellent results and that our MGA and program businesses have also improved relative to second quarter. New business and retention are similar or better than historical levels, and rate is up double digits. Combined, these three wholesale businesses might post organic growth towards 6% in the third quarter. Our employee benefit brokerage business, Bill is seeing some softness in consulting and project work. New business is a little challenging, but retentions remain really strong. Let's call that organic a minus 2% for the third quarter. When I sum it up, it feels like our brokerage segment organic will land somewhere around 3% for the third quarter.
That's about a point better than the 2.1% we posted in the second quarter and just a bit better than our view six weeks ago that we provided during our earnings call. As for our risk management segment, looks like minus 6% organic, which is in line with our expectations and a nice balance off of being down organically 10% in the second quarter. As for third quarter adjusted EBITDA, our cost savings initiative should deliver another terrific quarter. To refresh your memory, in the second quarter, we were able to adjust our expense base lower by $74 million. About $60 million came in the brokerage segment and $14 million in the risk management segment. Shows you our operating flexibility and how quickly our team can adapt to the pandemic. Broken down further, these savings came from reduced travel, entertainment, and advertising down $24 million.
Reduced technology, consulting, and professional fees down $14 million. Reduced outside labor and other workforce actions $13 million. Office supplies, consumables, and occupancy costs down $12 million and lower medical plan utilization $11 million. As we sit here today, it's looking like we can get close to that again here in the third quarter. Call it $65-$70 million of savings after adjusting for rolling merger operating costs. That's a little lower than the second quarter since we're seeing more normal medical plan utilization, and we're also seeing a little travel and advertising being up just a little bit. That said, still being able to deliver upwards of $70 million of savings in the third quarter would be really great work by the team. Let me move on to some comments on the fourth quarter. You heard some encouraging comments from each of our various businesses.
In our P&C brokerage operations, we see a good fourth quarter, a lot like the third quarter. Within our open wholesale brokerage, our wholesalers are having a terrific year, and now we're finding that MGA brokerage businesses are growing again. Fourth quarter might be even better than the third. On the benefits brokerage side, we're still seeing organic being negative or perhaps back to flat as we're hopeful that domestic labor market continues to improve, and we're also encouraged by how resilient our international operations have been. We're even starting to see some green shoots in our compensation consulting practice. It feels like fourth quarter brokerage organic could be very similar to third quarter. I would even say even better, but we did have an exceptionally good fourth quarter in 2019 for contingent commissions. Being close to the third quarter is close enough for now.
As for risk management, perhaps more sequential improvement in the fourth quarter. Will there be enough additional partial openings or openings going higher than 25% or 50% of capacity remains to be seen, but a surge in reopenings might get us back to flat. When it comes to fourth quarter EBITDA, a lot will depend on what happens with the reopening journey. If fourth quarter continues like we're seeing here in the first couple of weeks of September, I would expect we can hold a large portion of our cost savings. If there's great progress on a vaccine or a therapeutic and we see activity jump, that might lead to more travel, some additional investments, etc. Of course, as always, I must caution there remains a lot of uncertainty out there as we move through year-end.
All of this might hinge on another round of government stimulus, but that's what we're seeing as of today. All right. Let's move on to the CFO commentary document that we post on our IR website. You won't see any significant changes to what we provided during our second quarter earnings call at the end of July, except three small tweaks. First, on page two, foreign exchange. The dollar has weakened against all major currencies since the end of July. That still has minimal impact on full-year EPS, but the full-year revenue impact on our brokerage and risk management segment revenues are a little less than previously estimated.
Second, when you turn to page three of the CFO commentary document, to the corporate segment, we did improve our forecast slightly for interest expense for the second half of the year as our expense savings initiatives are positively impacting cash flows. Third, turn to page five to the rollover revenues table. With only two weeks left in the quarter, we're projecting third quarter rollover revenues of about $50 million. Even if we close a few acquisitions before the end of the quarter or foreign exchange rates move wildly, this is unlikely to change more than a couple of million dollars. It seems that quite a few models are forecasting third quarter rollover revenues of much more than that, so please take a look at your models as you fine-tune your estimates. Finally, some comments on cash, liquidity, and debt.
As we look across our business, cash flow and liquidity remain strong. I can see our global cash receipts daily. Cash receipts in July, August, and through yesterday are trending similar to pre-COVID levels. We're just not seeing liquidity issues with our clients' ability to fund their insurance premiums and claim settlement accounts. We also have more than $500 million of available cash on hand at the end of August and only $75 million of debt maturities coming up in 2021. Plus, we have more than $1 billion of available capacity in our revolving credit facility. Both our clients and Gallagher are in really good shape here. Those are my comments. Looking like another quarter of positive organic, a stockpile—excuse me—a stocked M&A pipeline, strong EBITDA growth. We've got excellent cost control and ample liquidity.
With some hope that the economic conditions continue to improve, I think we can pull off an excellent full year in 2020 and be in terrific position going into 2021. Okay, Mike, those are my comments. Back to you, Pat.
Thanks, Doug. Thanks, everybody, for being with us this morning. It's time now, if we can, operator, to go to questions and answers.
Thank you. The call is now open for questions. If you have a question, please pick up your handset and press star one on your telephone at this time. If you're on a speakerphone, please disable that function prior to pressing star one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star two. Again, that's star one for questions. Our first question today is coming from Elyse Greenspan from Wells Fargo. Your line is now live.
Hi, thanks. Good morning.
Good morning, Elyse.
Hi, how are you? My first question was wanting to spend a little bit of time on the margin within the brokerage segment. If you assume, I guess, a certain percentage of saves similar to the Q2, right, the 60 relative to the 74 would hit in the Q3. It seems like you could see around, just based off of my revenue estimates, around 430 basis points of margin improvement just from the saves. I am trying to get a sense, I guess, that feels about like money might come in. We are going to see 3% organic within the segment. I would think that there would be some underlying core margin improvement on top of that. Can you just help me piece together how the margin might look within your brokerage segment in the third qu arter?
All right.
A couple of things. You said $60 million to $70 million. I think that in the third quarter would be closer maybe to $65 million-$70 million. Probably spread proportionally across the brokerage and risk management segment similar to what we saw in the second quarter, which was $60 million and $14 million. Do that split kind of four-fifths and one-fifth. I think that in terms of core margin improvement, if we're running at 3%, pretty hard to improve margin improvement, but I think last quarter we saw 50-70 basis points. Between that saving and core margin improvement, you're probably looking at it the right way.
Okay. The 3% organic that you're expecting, I know the Q2 was a pretty strong quarter for your contingent commissions.
Is the organic in the Q3, do you see it coming in as more weighted to just base commissions and fees than contingents or supplementals?
I think that actually in this I think that base commissions and fees in the third quarter could be right around that same number, maybe a little better. And maybe there is just a little bit of softness in the supplementals and contingents relative to last year, but we're talking a couple of million bucks on that. So I would say core might actually perform better than the 3%.
Okay. And then a couple on the M&A side. I saw that you guys had alluded to multiples going up. Obviously, we've seen deals be a little bit more muted of late just given the environment.
That multiple guide that you guys revised up, is that based off of what you're seeing in the pipeline, or is that also estimates? You guys seem a little optimistic that given some changes on the capital gains tax side, we could see deals pick up towards the end of the year. Would you expect multiples to remain elevated when deals potentially start to pick up?
I think a couple of things. First, we did change our guidance from 7-8.5 or 7.5-8.5 to 8-9. I wouldn't say that's a big march up in terms of multiples that we're looking at.
We do have two or three nice brokers or large local brokers that are in the pipeline that might push that up a little bit more because they do command a little bit higher price. Their growth is good. More importantly, the arbitrage to our trading multiple is still there regardless of whether it's 8 or 9. These are family-owned franchises that we think fit very well with us. We've proven that on some of these larger ones with $20 million-$30 million worth of revenue, we're just going to have to pay just a little bit more. Their growth is also really good, and the capabilities they bring and joining forces with Gallagher makes us even better because we can start sharing ideas on kind of their global placements into London, etc.
There is a little uptick on it, but I would not say it is anything out of pattern other than just the size of a couple of the deals.
Okay, thanks. My last question is on the reinsurance side. I guess Capsicum, which you guys are going to rebrand Gallagher Re, just an update. I think Doug, the last time you gave us the numbers, it was around $100 million in revenue. Just an update on the size of the business, the growth that you are seeing there, and anything just in terms of long-term aspirations for how big reinsurance could potentially become. Thank you.
I will hit one thing on that, it is doing really well. I got to give it to the team over there in London.
They're delivering exactly on what we thought as we deepened our ownership interest in them to 100% here at the beginning of the year. I think coming into the reinsurance environment here at the end of the year, their capabilities are really going to shine bright. I would say organic's going to be very, will be good for Gallagher Re going forward. It's an important position for us, and I think there's a lot of disruption in the market.
Yeah, Elyse, this is Pat. I think that the timing, like so many things we've done, just couldn't have been better. As I've said many times, this is probably the best startup I've seen in my career, and it continues to grow nicely. There's clearly a tremendous amount of need in this marketplace, and I think that need is being met by the capabilities that we're being able to recruit.
Excited about rebranding, Gallagher Re. Those of you that are on the call have been around for a while would maybe get a chuckle out of that. I think we're going to do extremely well, and the team, as Doug said, is executing. I think we'll jump off that $100 million and grow very, very nicely over the next decade.
Okay. Thank you. I appreciate all the color.
Thanks, Elyse.
Thank you. Next question today is coming from Greg Peters from Raymond James. Your line is now live.
Great. Good morning, everyone.
Hey, Greg.
First question. I thought Bill's comments were interesting, and while he was talking, I did pull up the benchmark strategy survey. I was looking at the conclusion that you put out that said you expect 86% of your employers that you surveyed to retain their work-at-home policies after the pandemic.
When you see those types of numbers, first of all, does Arthur J. Gallagher plan to keep 86% of its workforce at home afterwards? I mean, the potential longer-term savings on real estate seem to be pretty substantial. Or am I missing something?
I think it's 80 I think I'm looking at Bill here, but I think that the answer is 86% of employers believe that they will have more people working from home, I think, is the answer to it. Does that mean that 86% of their workforce will be working from home? I don't think that's what the survey's saying. If I could, there was a tripling of the number of employers that actually had telecommuting policies, and 86% of those are going to continue to have those telecommuting policies going forward. All right. Clarifying maybe what the 86% is.
What do we see here at Gallagher? We see opportunities for us to reconfigure our offices so that we can make a safe-at-work location with providing some nice privacy, some flex space. That will naturally lead us to need to take less space, so we might go to some hoteling concepts or some rotation concepts. It also would probably let us look at the type of building that we use. Typically, we'd go into our locations, a suburban location, maybe go on the fourth floor of a building. We may look at more first-floor type locations just so that our employees don't need to ride elevators. We may do more drive-up type buildings that also are first floor. Greg, in answer to your question, yes, over the next five to seven years, as our leases roll off, we believe there could be substantial savings in real estate.
We're spending about $180 million a year on occupancy, and it wouldn't surprise me if we can get that number down to half over the next three, five, seven years.
Yeah, but Greg, I think this is Pat again. I think let's not miss the comment that Mike Pesch made, and I think Bill's about as well. I think the operating result of having our customers be more willing to do things virtually is where the impact could be for us. I mean, Doug's going to oversee, and we'll do a good job of getting our savings. I think this is going to really juice the whole concept of the capabilities count. Right now, when you've got to be in every location, remember, most of our business is middle market. So I'm sitting there with some person that spends $150,000.
I can't get Brian Cooper on an airplane twice a week to come and see clients like that in different parts of the country or the world. I can virtually. Now when I'm sitting there and I can pop up my laptop and I can say, "By the way, here is Brian real-time live." His team of construction specialists are behind him. Boom, ask the question. Where's the Jones Agency on that one? Mr. Jones will be over tomorrow, maybe. It's really going to be powerful stuff.
Yeah. Putting our best athlete at the exact point of pitch or at close or just being over there to hold our customers' hands through a tough environment is now becoming acceptable on a virtual basis.
By the way, I've had experience in the last month. We've saved an account that was substantial in size.
It was a construction account. That client didn't even know all the people, the experts at Gallagher that had been working on the account because, obviously, our local office orchestrated that. They decided to leave for a smaller broker, and we rolled out the experts who got on the phone. When the person says, "I did this for you. I'm out of San Francisco. I know it looked local, but it wasn't. I did this." Someone from the U.K. chimes in and said, "Here's what we're doing." They reversed themselves and stayed with us, which, of course, feeds into our M&A platform.
Great. You've laid out an outlook for the third and fourth quarter that look, in the context of everything that's happened this year, pretty solid.
When we're out talking to your investors and potential investors, one of the common pushbacks we get is regarding the savings that you've been able to harvest this year. I think you mapped out $60 million-$70 million of savings in the third and fourth quarter, Pat. I guess, and I understand that Doug went through and gave us some pieces of where the savings come from. When we think about 2021, there's a couple of headwinds. First of all, medical utilization presumably will go back up to normal. There's other pieces. I assume some of your travel. How should we think about 2021 in the context of these run rate savings? Because you have this record of expanding your margin, and it might be a headwind next year.
Yeah. I think you got to look at it a little differently than that, Greg.
If you draw a line from 2018 through 2022, I think we're going to see that same type of margin expansion going through over that four-year period. We're going to get a bunch of it this year. We'll hold on to some of it next year. We also have projects underway that will also contribute to continued march towards margin improvement. I think we've improved margin every quarter for the last 20 quarters other than maybe one or something like that. The march on the line, we might be getting there a little bit faster, but we're still going to get margin improvement. We have 12 different task forces underway, and some of these are anything from records retention to training and development to outgoing incoming mail, producer licensing, kind of projects that might not get you too terribly excited.
When you add all those up, it can lead to maybe as many as $40 million of annualized savings that come just from those little projects. You take the fact that over 15 years, we have invested heavily in standardizing our work, shifting work to lower-cost labor locations, improving our technologies, becoming more efficient, yet raising our quality. I see us continuing to have opportunities to leverage those capabilities across not only the businesses that one business in particular has 30% of its headcount in our centers of excellence. Imagine the journey when two or three other divisions go on that same journey over the next few years. Margin improvement is in our DNA. We're harvesting a lot of it in this case. There will be some costs that creep back in next year. We are back at full medical utilization.
That's why we're not saving $74 million this quarter, and we're saving close to maybe $70 million because, thank goodness, people are out there getting their preventative medical care. If people aren't excited about that story, I don't understand why. We're still on the path of margin improvement. Just because we get a little bit more this year, I just don't understand why that's not a great story.
Okay. Thanks for the rebuttal on that. Two other small questions, numbers questions on page four of your CFO commentary. My gosh, I know you guys have beat this up several times, but this is the Chem-Mod and the total after-tax earnings. For 2021, we should assume, based on what's going on with the government right now, that that's zero after-tax earnings, correct?
No.
That might be 2022, but 2021, we will still have our clean energy segment earnings on that. Remember, these are GAAP earnings. What happens in 2022 is we start harvesting all the cash that we've, the credits that we've created. What will happen is GAAP earnings on a reported basis might evaporate for this segment, but cash earnings for this could be even more than what we're reporting by a long shot because we're starting to use that billion-dollar-plus receivable that we have from the government on our tax credit. 2021 should look a lot like 2020. 2022, you'll really start seeing the cash flows coming off of this business.
Got it. The final question on the cash flow. You said $500 million of cash available for acquisitions. You said $1 billion of revolver available. You're never going to want to spend all of it.
If you think about what you'd like to have, call it walking-around cash for acquisitions or dry powder, what's that number look like for Arthur J. Gallagher on a quarter-to-quarter basis?
I think that by the time you look at just our ability to harvest the cash out of the bank accounts around the world, we haven't talked about that. Generally, we end up about $100 million and a quarter of cash that just we can't get it today, but it might take us 30-60 days to get it just by the time we transfer it.
We're also not too eager to repatriate cash because the cash that we report on our balance sheet, if you convert it back into local currency, that which shows you the buying power that we have there, it might be another $50 million-$100 million because a lot of that cash is sitting in foreign accounts. We will use that cash, not in dollars, but in pounds and in AUD, etc., to do acquisitions. CAD will do acquisitions. So the buying power of our cash is even greater than the $500 million. By and large, there's $100 million and a quarter that just kind of sticks in all the minimum bank accounts, etc. It's our cash, but we just can't get to it all.
Great. Thank you for your answers.
Thanks, Greg.
Thank you.
Our next question today is coming from Mike Zernick from Credit Suisse Reliance. How are you?
Hey. Good morning. Morning, Mike. First question for Pat, thinking about your P&C rate environment commentary in the early remarks, I think you mentioned you could see reasons for carriers to ask for even more rate. Maybe you can flesh out why you feel that's the case.
I mean, I think a couple of things. First of all, everything you read is about inflation when it comes to claim settlements, especially in the United States. We're seeing rocket-ship-like settlements occurring out there. I'd just call that social inflation, which is not going to go away. Secondly, I think that just basically the cost of risk is higher, and you're seeing that the typical construction and what have you costs are up, and you're seeing more claims, even in the middle market side.
I mean, these storms that are hitting us in the south may not get the kind of press and publicity, which, by the way, Katrina deserved, but they're repeated assaults on the business, on the property side, which is why, especially when you hear Joel's comments about our wholesale business, property rates are up. By the way, that's where capital will flow into the market to mitigate over time, but that's also good for our clients and good for us. I just think the overall social and economic environment of the loss picture is worsening. You have the investment environment, and there's no interest rate. Now, if you think about it, a big chunk of our carrier stability and earnings over the past decades has been from their returns on invested assets, and that's just under stress.
All of those things together, I think, add to a picture where, frankly, we as brokers need to do a good job explaining this to clients well in advance of their renewal because the worst thing a broker can do is surprise their client. Now, from 2008 to 2018, you all heard me say I really loved the rate environment because I called it flat. You would talk about, "Well, Pat, it looks like the CIB is saying up one and a half this quarter. Oh, next quarter, it's down one." I'd say, "Guys, up two, down two, up three, even for a quarter. That's flat, and that's fantastic." I don't like hard markets because they do dislocate our clients, and they're not good for the client, but they're good for the broker, to be honest.
This is a time when we shine for the client, and we get paid for it.
Okay. I guess when Scott Hudson's kind of talking about continuing to see overall work comp and GL claims activities being down double digits during this pandemic, clearly, you feel this is going to be temporary because it does seem like there's a short-term reprieve for the carriers. Doug's kind of gave us an update too that contingent and supplementals will be healthy this quarter as well. I guess that's kind of what I think some investors are trying to figure out. There seems to be some benefit, even despite the storms, because of less claims activity. It sounds like you're saying that it's likely to be short-lived.
Mike, the other thing too is that I think you got to see when you hear Scott's comments and what have you. We're talking about PC carriers trying to deal with this hardening market. Now, if you look at our history, we come from the risk management, moving clients from first dollar coverage into forms of self-insurance. That's a huge differentiator. I will tell you, when the Aon Willis acquisition is over, there'll be three or four of us in the market that have any real expertise at that. By the way, the need to be able to move into the alternative market goes deep into the middle market. That's why our group captives will be and are exploding as clients try to deal with this. The way they deal with it is by taking more risk.
When they do that, that takes even middle market clients right into GB's lap. That's why they're where they are today because that's what we did in the 1960s, 1970s, and the early 2000s with hard markets. You see a spike in people saying, "I've got to deal with this a different way." The alternative market, we were part of the dawn of the alternative market. We practically helped invent that market. I keep coming back to this, but if you're a little local broker and all of a sudden a client is saying, "I'm hearing from this firm, Gallagher, that I should be considering taking a large SIR," I don't even know how that works. You're sitting there saying, "I've got one that I did once a number of years ago." What's a group captive? How does that function?
What do I own? Do I stay? Do I own stock? How does that work? Who pays my claims? We kill it in that environment.
That's helpful. Okay. Understood. Looking at my maybe a couple of questions for Pat. Would you be willing to kind of share maybe at a high level what percentage of your expense base is T&E and real estate expenses?
Doug touched I'll throw that to Doug, but Doug touched on real estate being about $180 million.
Yeah. $180 million on that, and our T&E is running somewhere around $75 million. Just pure T&E.
Okay. Perfect. Doug, are there any changes potentially to update on the longevity of some of the clean coal credits if we're thinking out 2021, 2022, 2023?
Again, I think that there are some that are looking for an extension of the Section 45 generation period.
The generation period ends, it sunsets at the end of 2021. There are some movements afoot of trying to get that extended a year, two or three years on that. If that happened, that would be terrific for us to extend that. Even if that does not happen, again, I come back to that we do have right now kind of a seven-year runway of generating more cash out of that by using our credits. An extension would be terrific, but I think getting into the cash utilization or cash generation period, let's call it the harvest period of the billion, billion one of tax credits we have on the balance sheet, would take that too. Section 29 ended a number of years ago, and things went quiet for a year or two, and then Section 45 came about.
I do believe that energy needs in the U.S. continue to the government recognizes that encouraging innovation through tax credits or subsidies through tax credits is important. There could be another law that comes into place that encourages further innovation either in the coal space or in the wind or the solar or other energy. There could be another law that comes down the path that says, "Let's encourage innovation," because this really does work. I mean, we are making coal burning better every day. As long as the U.S. needs coal, let's make it better. I think the government has recognized that, and it has worked out pretty well.
Okay. Got it.
Lastly, just wanted to flesh out Bill Ziebell, and I think Pat too in your prepared remarks kind of brought up, I think, a slowdown in sales due to it might have been health insurance carrier holidays. Maybe I think that's something a lot of us don't fully understand or appreciate. If you can just quickly flesh that out.
Sure. Hi, Mike. This is Bill. If you remember from the ACA, there were medical loss ratios that were in the law, and it required the healthcare insurance companies to take 85 cents of every dollar of premium and spend it on claims. What you've heard already probably from other sources is that a lot of the elective surgeries and things of that nature are down.
If a carrier has taken the premium and there's no claims to be paid, they're stuck with this excess cash, if you will, and they had to give that money back to the employers who are paying the premiums. In doing so, they're maintaining their 85% medical loss ratio, but they're taking pain away from the employer, which is slowing down the new business opportunities for us.
Got it. Less reason for professive clients to switch, but also does that mean inflation is negative for health spend too or less positive, and that's also an impact?
A little, I guess you could say, but that's kind of built into our numbers that we've already reported on. I would tell you that what's also interesting, if you go back to the Great Recession, a lot of those elective surgeries and so forth were put off during that time.
They never really came back. I think you'll see that we'll see more of the same for the coming months in terms of medical claims. Don't also forget that a lot of our clients are self-funded as well, and that's helping their bottom line, their P&L, because they're not paying the claims on those procedures as well.
Thanks for all the insights.
Yep.
Thanks, Mike.
Thank you. Our next question is coming from Ryan Tunis from Autonomous Reliance Now Live.
Hey, thanks. Appreciate it. Just a few cleanup questions here. I guess the first one, following up on that question about utilization, is there a positive impact in terms of contingents or supplementals when utilization is low as it's been?
Not so much on our benefits business. That's mostly volume-based supplementals and contingents. It's not loss ratio-based supplementals or contingents.
Okay.
Also on the employee benefits side, you mentioned that retention is pretty high, but there have been some situations where you're getting premium holidays. Could you give us some context of maybe what % of your employees are currently on premium holiday?
Really hard to give you a good number, but I would tell you it's pretty consistent across the medical carriers in giving those holidays. We've done a great job of ensuring that we're still getting paid from those carriers. There are some headcount down, as we discussed with furloughs and risks, but by and large, we've been able to continue to get paid by the carriers despite their holidays.
Got it. Then on the T&E number of $75 million, I have to ask, I think you said one Q that T&E was down $25 million or two Q was down $25 million alone.
Just trying to maybe understand the seasonality of that because that seems to imply annually it's down more than 100%.
I think you have to look at it. It's reduced travel, entertainment, and advertising was down $24 million. Within the travel, there's meeting expense in there too. The question earlier was, what's our pure T&E? It's about $75 million a year, and leases are about occupancy costs about $180 million between those two. By the time you throw in some meeting expense in there, that's why you can't look at that $24 million purely against the $75 million.
Got it. Lastly, I guess one thing I'm kind of trying to understand is the way that all this rate and exposure, maybe a tutorial on just how property works in general.
I get that if you're a hotel, you're still in business, you're probably paying more, right, because pricing is up, you haven't shut anything down. Looking for a tutorial there, and I guess just an open question, if Gallagher were to reduce its real estate footprint by 50%, how much less would you guys be spending on property insurance?
Oh, our property insurance costs are negligible, Ryan. I mean, we're in high-rise buildings that don't typically burn, that are well sprinkled. I think let me try to get to the gist of the early part of your question, and Doug can answer the question on cost saves around real estate. It's a pretty simple equation with property. You've got a piece of property that was built. Remember, property is not insured for the market value. Property is insured typically for construction, rebuild costs, replacement costs.
You can buy it on an actual cash value, but that's kind of a dumb thing to do. You buy it based on what it would cost to replace it. You have co-insurance, which means you've got to basically pay for the whole value of the property. You can't say, "I'm going to buy it. I got a $1 million building. I only buy $500,000 because the insurance company said that's not fair. They got to get premium on the $1 million." You pay that. Now, in typical times, based on your location, whether there's flood exposure, whether there's fire exposure like California, or whether there's other exposures like hail and snow, those prices are built into package quotations that typically are filed rates with the individual states. When you start to get into businesses like, well, let's call it dynamite manufacturing, guess what?
They haven't filed rates for that. Those businesses won't typically be insured in the standard market. They'll go excess and surplus to Risk Placement Services for help on difficult-to-place risks. That's not rates that are filed. That's free to form and free to rate. That's just up and down with the market. Bottom line is most property long-term at the operating level, middle market, and small accounts is pretty steady. Times like this, you might see those filed rates going up 3%, 4%, 5% because they've got to get out in front of that social inflation. Times like this, when you are in the excess and surplus market or a hard-to-place risk, those are going to jump by underwriter appetite. That's a tutorial in two minutes that I hope helps.
In terms of our cost for property insurance, remember, most of the time, in fact, in almost all of our locations other than our headquarter building, it's where the lessee and the landlord pays for the property risk. Generally, with that, we might buy the content cover on that. By and large, that's the landlord's expense.
How linear is there? If we think about other businesses shutting down 25% of their real estate footprint, how linear should we think about that in terms of how that translates to exposure?
One of the things we love about that, Ryan, is they still buy the insurance because they got a building sitting there.
Non-occupied buildings are actually more costly to insure than occupied buildings do.
Overall, the property organic, I'm guessing, has year to date been well above what the retail P&C brokerage stated organic is, correct?
Above, I would say it's probably running one and a half X or two X, but not like four, five, or six X.
Understood. Hey, thanks for the answers, guys.
Sure, Ryan. All right.
Thank you. Our next question today is coming from Mark Hughes from Truist Securities. Your line is now live.
Yeah. Thank you. Good morning.
Hey, Mark.
Morning, Mark.
You had talked about the growth trajectory 2018 to 2022, and I think you made some reference to next year. Did you say you think margins should improve next year, year-over-year?
Oh, Mark, I think it'll be hard to improve margins next year. The question is, can we hold them? I mean, when we're up 400 basis points, 500 basis points, 600 basis points, next year is hard to look at. What do our clients expect from us? What's happening with unemployment?
Where are we on the organic curve? If next year organic pops up again to where we were running 5-6% before COVID, we're going to be traveling more. We're going to be making investments in technology. We're going to probably be needing to go into some outside labor and rehire some folks. Right now, we've been letting attrition do a lot of our work there. If people get back into our office but still, if we get back into that 6% organic growth, we will keep some of these savings. You would see kind of that natural 70-100 basis point margin improvement. Below 3%, hard to improve margin. Between three and four and 5, you can get some.
When you start getting over 5% organic, you're going to naturally have margin improvement in this wage environment that we're seeing right now that could be well over a point a year. I think that would give some of this natural savings that's happened back, but we'd probably then just have the natural glide path of margin improvement as we get better and better every day. Back to Allison's question at the beginning of the or excuse me, Lisa's questions at the beginning of the call, there's just some forward glide that will happen naturally, especially if you get in that 5-6% organic range.
Thanks for that clarification. Bill talked about winning some business as a fresh alternative to bigger competitors. I thought that was interesting.
With the merger presumably coming, what's your latest thoughts, either Bill or Pat, on what that could mean for your business?
Yeah. We feel really good about potential because of the merger that's going on. There aren't a lot of our competitors that actually have the capabilities that we've invested in over the years. As I mentioned, the levers that we're bringing to the table with Gallagher Better Works, we really outflank the smaller competitors time and again. We're coming up with innovative ideas to these larger employers that have traditionally gone with the bigger names, but they love our entrepreneurial spirit and innovation and roll up the sleeves and get it done. We're winning a lot of deals that way. We're very bullish about the opportunities, not only for winning new business, but potentially recruiting talent out of this merger as well.
Pat, on the P&C side?
Oh, Mark, you know how I feel about that. I mean, you're listening to a guy who's been very strategic over the last 30 years. We've gone from 13 to what will be 3 by basically keeping to our knitting and let the others combine. Whenever that happens, it creates tremendous opportunities for us across everything we're trying to do. Bill mentioned the fact that we've outflanked the smaller players. They can't compete with data and analytics. They can't compete on expertise in our verticals. Frankly, when you've got massive organizations coming together, the opportunity for people to look and say, "Maybe I'd fit better at Gallagher is rife." Once again, when there's change and consternation, that's good for us.
On the operating side, in terms of doing business, really, there's an awful lot of competition in the small broker community. There's still probably 19,000 agents and brokers in the U.S. Some would say more than that. Those with any real capability are going to really now go down to three, maybe four.
The kind of small bore question, but you'd mentioned the strength, both you and Joel, about professional liability. Any quick summary on what's going on in healthcare liability, healthcare professional liability?
Yeah. Joel, though. Yeah. It's a lot of segment by segment as things have transitioned in the hospital space to other areas.
Really, when you look at it from a professional liability standpoint, and I guess we could expand that to D&O or other areas, but if you stick with healthcare itself, the market in assisted living and long-term care, they are in a pretty difficult spot as far as the premium and rate increases. Moving into D&O, I think you've probably read and seen that is probably the most difficult part of our industry as respects rate and term changes. We really aren't seeing any let-up in that at all.
A final question on the workers' comp claims. If you could give us a sense, year-over-year in 2Q, how much was workers' comp down in terms of claims? So far in 3Q, year-over-year, how is that trending?
Hey, Mark. This is Scott.
As I mentioned in my comments, distinguish between the higher volume claims and then the more complex claims. We are probably, I think we were saying, still close to 30% down on the simple ones. If you look year-over-year on the more complex claims, closer to 10%. It varies a little bit from state to state, but I'd say that's what we're seeing right now. What was that in 2Q? Just as a refresher. It could go as high. I mean, overall, once again, we got as high as maybe 30-40% down, but it was probably the lower volume ones closer to 40%, a little bit higher, maybe as high as 50% down. With the more complex ones, it probably was in the 25% neighborhood.
Still down pretty substantially here in Q3.
Yeah.
I mean, there's no doubt about it. I mean, it's significant. As I mentioned, there isn't, if you just kind of look around day to day, it seems to have plateaued a little bit here because you don't hear of this natural progression. I don't know, take restaurants or something, that they're going to go from 50% to 60% to 70% to 80%. It just seems like things have plateaued a bit. We are not seeing that until we do. I don't know that we anticipate a significant uptick, but I will reinforce that the parts of our business that are kind of cost-plus contracts, our captive business that Pat mentioned, there's a number of parts of it that remain relatively strong, the specialty business that Joel was mentioning with MedMal. There are aspects of it that are strong still.
Yeah.
I think that when you look at it, Mark, on a revenue basis, Scott's looking at maybe being backwards $10 million, $11 million, $12 million here in the third quarter. Even though those percentages seem high, as that translates into revenue loss for our risk management segment, it really is a manageable step back that can be covered with cost savings and more on that.
Just one more comment, Doug. I would just say that our new business production is overall significantly higher than a year ago. That is something that is a nice offset to that as well. We're finding ways to kind of deal with the impact, but it's still down.
Yeah. If I might say, it just seems like it's down substantially more than the overall employment levels. Is it people just not reporting claims?
The ticky-tack claims, the smaller claims, they're just not reporting. It seems like there's something else going on. Clearly, your business is doing well. Understood the down 6%, but it's just an interesting result to see that the workers' comp claims are still down so much given what we know about the broader workplace trends.
Yeah. You know what? That's something I can actually probably even give you a little bit better answer if you give me a—I’ll go through Ray and get you something back to get some further detail on it. It is there just simply are fewer of the simple claims kind of coming through. There's no reporting issues. I mean, there may have been early in the pandemic, we may have had a few issues, but that's all still coming through quite simply and working well. I don't know.
You know what, Mark? This is Pat. My experience with recessions, you don't file ticky-tack claims when you want to keep a job. You don't need the time going to the clinic to get one stitch. You'll bandage it up and move on.
We got a lot of people working from home. A lot of people working from home. At least that's probably another indication or another area where we aren't seeing quite the same level of activity in a lot of workplace claims too.
Sorry to dwell on that. Appreciate a ll your details. Thank you.
Anytime, Mark.
Thanks, Mark.
Thank you. Next question today is coming from Paul Newsom from Piper Sandler. He's now live.
Hey, good morning.
Morning, Paul.
Morning, Paul.
There's a lot of discussion about turmoil in the reinsurance brokerage business and possibly getting advantage of that.
What about the large account commercial business? I know you guys write at least some, but if Gallagher decided to play kind of on a day-to-day basis, would the company need a different infrastructure than it currently has to compete on a day-to-day basis with the big boys?
I'm sorry to cut you off, and I'm not going to let you get away with calling the others the big boys. We are not in one bit shape or form shy in our representation in that market, our appetite for that market, our capabilities in that market, or our activity level in that market. We're not sitting around one day deciding to hit a lever that says it's only middle market to small, and oh, maybe we'll go after a big one today.
We are out after everything we can get our hands on, and we've been doing that since the 1960s. No, we don't need to rejigger anything. We don't need to reinvest in anything. We're reinvesting every day, of course. We are very, very tough on large risk management accounts, which we have a very nice complement of. Will we see more opportunities because of the major acquisition? Absolutely. Are these competitors of ours credible, unbelievable competitors? Yes. They're very, very good. They're very good at what they do. That's the essence of competition. We love to get out, get in front of clients, and tell them why we still think we can offer our brainpower as a differentiator. No, don't be looking at us to say that we're making a switch in our mix or anything like that.
We're out every day after risk management accounts.
I think we'll get more opportunities at the plate. I think that if somebody puts an RFP out for three, we'll be there. Before, maybe not. I think we're going to get more opportunities on the plate. I think that when you look at the way that we deploy our athletes into the point of sale with our niches, our technical expertise, I think we're going to win a lot of those opportunities.
By the way, those expertise areas are not just by the vertical category like real estate, construction, what have you. They're also by category around coverages, D&O expertise, our environmental expertise, our cyber expertise. Second to none. We don't take a backseat to anybody on that stuff. We're the largest player in the ILS market.
When you look at Gallagher today, we kind of have to remember that this is not the small local broker that it used to be.
I guess that ages me. No, clearly, it's a great opportunity. My second question is just a clarification on the whole tax credit information with respect to cash flow. I'm sorry it's a little detailed, but my understanding is that the tax credits allow you to take a 21% federal tax rate down to something that's a little bit over 5% in any given year. You also said that you expected it's possible that you'd actually have more cash benefit in 2022. Is that simply a function of the fact that you would hopefully be earning a lot more in 2022 on a pre-tax basis?
Because I'm guessing that you're using the tax credits today and would be in 2021 as well at their maximum capacity. Or do I have served the bath wrong?
There's two things. Yes. As we grow, we'll use more. So that's one thing. Also, currently, we're expending cash today to generate credits so that reduces our taxable income by itself. When we're not spending money today to create tax credits that we'll be using in 2026 or 2027, that negative cash flow goes away there. It also doesn't shield the taxable or the other income. You end up going I think we're using, let's call it $75 million of credits a year right now. I think that will pop up to somewhere around $130 million-$150 million when we stop producing credits at the end of 2021.
It's both the growth and just the fact that we're spending cash today to generate credits that we'll use in a few years.
Thank you. That got me exactly where I need to go. Appreciate it.
Okay. Thanks, Paul.
Thanks, Paul.
Thank you. Next question today is coming from Meyer Shields from KBW. Your line is now live.
Thanks. I want to go back to the large account discussion, but in a different context. Can you update us on what you're seeing in terms of recruitment and M&A outside of your current main geographies?
Outside our current main geographies? First of all, let's back up. Strategically, we've been telling you since 2014, we covered the world. We've done very well with our acquisition activity in Latin America. Obviously, we've done very well in Canada, the U.K., New Zealand, and Australia.
There are opportunities in Asia as well as Europe and the Middle East. They're not jumbo. They're not needle-moving. But we do see opportunities. Eastern Europe as well. I guess when I come back to what does that all mean? It just means, again, that we have greater coverage, greater opportunity to talk to clients that are expanding globally. As Doug said, which I think is a point I missed saying, which is a good one, is that where you want three players at the risk management level to look at your RFP, there's not any questions anymore as to which of the three you pick.
No, I understand that. I mean, I hope I've been clear. I apologize. When I look at sort of the Western Europe market, I have to assume that that's fairly sizable. I don't know what's available.
I would think that as insuranc e brokerage markets, that might be an attractive place to do more acquisitions.
It is. And we've got a good pipeline there, Meyer. And as you know, we've done some good, really good deals in Scandinavia. We've got presence, not jumbo presence, in a number of those locations. Yes, Western Europe is a good opportunity for us.
Okay. Fantastic. That's all I had.
Thanks, Meyer.
Thank you. Next question today is coming from Josh Schenker from Bank of America. Your line is now live.
Yeah. Good morning, everybody. Thank you.
Hey, Josh.
Good morning, Josh.
Morning. Some earlier questions on how are the discussions going exactly for 2021? Do clients say, "Look, my workforce is going to be at home more. I want a different kind of workers' comp insurance.
I want a different kind of health benefit." Is the type of purchasing changing given the plans for how employers are going to employ their employees going forward?
Oh, there's no doubt about it. They're very interested in all that. Number one, how am I going to mitigate costs? That's where we start. That's why Mike Pesch's comments were good around, "Remember, we're brokers." Our job, so when you see that rates are going up 10%, don't expect our organic to follow that.
Our job is to sit and say to a client, "Look, now is the time to take a larger retention in workers' compensation, auto, general liability, whatever it might be, reduce the premium spend and take more of the risk yourself." Yes, employers are definitely asking, "How do I deal in a more modern way, in a better risk management way?" Which is, again, why our value proposition isn't just around, "This is your premium spend, and that's what you've got to do." It's how do you mitigate that? How do you create a different approach? I think your question also begs, what happens with a lot of people having at-home workers? Are there changes there? I think there's a lot of implications for healthcare and what have you around all kinds of different work environments. Again, all that stuff makes our advice more valuable.
Are you able to monetize your advice to get paid more to save your clients more? Or net-net, are you going to get paid the same thing for giving better advice?
It depends on the account, Josh. I think one of the things that we've always looked at is, are you really kind of eating your young a bit when you take somebody from buying first dollar cover into self-insurance? Their spend for premiums—I'm making these numbers up—they spend instead of $1 million in premium, $500,000. That $1 million might have produced $100,000 in revenue. Now, the $500,000 is going to produce $50,000. Oh, that's terrible for Gallagher. Not really. Number one, we'll never lose that account. Number two, Gallagher Bassett will pick up all the claim work.
Number three, we'll probably place that excess coverage through RPS. Will the general revenue be down in that account? Yes. That has been our history of helping clients do that. We'll mitigate that by getting a lot more clients. Bill?
Yeah. This is Bill Ziebell. Give you a quick example. We're seeing it out there. We're seeing it in our national benchmarking survey as well that with employers trying to keep costs down, you're seeing another increase in consumer-driven health plans. All right? That is actually shifting more costs to the employee. They're also then asking us, "What else should we be doing for those employees?" Because we're worried about engaging our best people that are no longer coming to the office. How are we going to keep them and so forth? You're seeing an increase in telehealth.
You're seeing increases in things like critical illness, accident insurance. They want to do more communication. They're asking us, "How can they hire us to help them do internal communications to the employees?" By and large, it's not hurting our revenue per se just because there are these changes. It's creating more opportunities for us to bring value to them and strengthen our relationship. In many ways, also adding revenue.
Makes sense. On the M&A front, look, I've been covering Gallagher for a long time. If I go back in time, I think I would say that you've always argued that the type of companies that you buy are good cultural fits for Gallagher. Maybe since I've been watching you, you guys have done 400 acquisitions since I've known you.
Is there any degree to which that cultural fit gets less relevant the more deals you do? Ultimately, it gets to the point where you know how to integrate these deals. The cultural fit is not necessarily as precise as it was six years ago. Is there any change in that sort of relationship about how you look to buy businesses?
Absolutely not. If you think about the rules that we laid out when you first met us, Josh, six years ago, the number one was, "Is there a cultural fit?" Number two, are they making money? Because if they cannot make money for your family, you are not making money for our shareholders. Then, okay, what does the business itself look like? Do you bring additional expertise? Do you fit into some of the expertise we already have?
We've learned more over the last decade from our merger partners in many instances than we've brought to them. If you think about that 400-500 acquisitions that we've done, out of just in the U.S., 19,000-25,000 firms that tend to replenish themselves as the acquisitions occur. Those are not my statistics. I get those from people who consult in the business. You look at it and you go, "No, no, no." As we get bigger, and as you know, we tend to raise our own around here as well as promote from within acquisitions, emphasizing to the next generation that the whole thing hangs on culture. They buy it. They get it. They're smart.
No, I would say, if anything, we still believe that that is the most important and critical element of the first call that we make when we're talking to an acquisition potential.
There's no argument to be made that you acquired the best fits at the beginning compared to the ones you're buying today.
Oh, God, Josh. I'll tell you. I think I told you this once. I think our longest dating session was 22 years. There are people that we've been talking to, family businesses that ultimately will fit for literally 20-plus years. No, we haven't cleaned the deck of all the good ones.
Okay. Thank you very much.
Thanks, Josh.
Thank you. Next question today is coming from Phil Stefano from Deutsche Bank. Your line is now live.
Yeah . Thanks. And good morning.
Hey, Phil.
Good morning, Phil.
Pat, I think at the beginning of your comments, you said something along the lines of policy cancellations are no higher than previous periods. Maybe that was with regards to business failures. Towards the end of Doug's comments, he said something along the lines of, "A lot of this, the guidance and the thoughts on forward periods, depends on government stimulus." We have conversations with investors. Some of the pushback that we get is, "Look, of course, the organic is hanging in there. The government is keeping all of their clients afloat. How do we think about the risk in the government stimulus going away? What's the potential headwind to organic? How can we frame this risk?"
First, I think you have to look at where the government stimulus is going.
In our customer group, if the preponderance of that stimulus is going to very small businesses, that's really not where we play. Right? Some of the stimulus that trickles up from small business, sure, I would say that we're two steps away from that. I do believe there will be more government stimulus. I do believe that it will get to the small business and there'll be a trickle-up. Does it directly impact us on the stimulus the next round? Probably not. I think most of our customers have weathered the initial shock on this. If we're in this reopening phase, with or without stimulus, it might be the glide path to recovery. With the stimulus, it might be faster. Without the stimulus, it might creep a little bit, maybe take an extra quarter or two for us to get to more full openings on that.
When we look at when we talk about the changes each month, midterm, those are things like positive audits, negative audits. Positive endorsements means you add some trucks to it. Negative endorsements means you take some off. When we look at out-and-out policy cancellations is really what we're talking about here. It really runs about $4 million a month. I'm looking at the sheet right here since 2019. August was $3.9 million worth of cancellations. July, $4.2 million. This is premiums that when we cancel the when that policy gets canceled, we have to refund a portion of the premium. If I go back to look at what May of 2019 is, it was $4.3 million. July, $4.4 million. A year ago. Cancellations right now are no policy cancellations are no more or no less than during the robust go-go periods of 2019.
In our book of business, these businesses are alive and well. They're growing their business. They're holding on to their businesses. They're not going out of business from what we can tell. They're not canceling their policies. If you get government stimulus that comes in, and my context of that was, "How do I feel about organic in the fourth quarter?" If we get some government stimulus, it could be better than what we thought. If we don't get government stimulus, maybe we end up at 2.5% organic versus 3% or something like that. I don't think you can throw a hat over those two numbers in my mind. It would be nice to get some government stimulus. I think it'll help the recovery happen faster. I think it'll get some people back to work in the hotels, the restaurants.
That will help Gallagher Bassett's business because they have a big practice in that area. When it comes to our brokerage business here in the U.S., the stimulus is a trickle effect. I think it is just a matter of how it accelerates the recovery versus keeping it from stepping backwards, in my opinion.
Got it. Okay. Thank you. Pat, when we last spoke, I had asked a question about the sustainability of the expense initiatives. You said, "Don't go crazy putting numbers in your models. We're going to get back out there flying. I have not flown this long since I was 11 years old." It feels like maybe there was a little more optimism in the ability to do these virtual sessions and to pull in the experts. I mean, am I just parsing words too finely?
Does it feel like you're a little more optimistic there?
No, I actually do, Phil. Yeah. I mean, I think that's fair. I look at this and say, "Surprise." Probably one of the key benefits of this entire stay-at-home thing has been exactly that. It's not me seeing it. It's our team telling me this. Experts saying, "I got to participate in three presentations today where, in fact, just a year ago, I'd be on an airplane during that three days." No, I think you can definitely sense some optimism there. I think it allows us to double down on the use of those experts. The other thing is, I think I found that people working from home, one of the things you fight, and all of us in the brokerage business, all of us who are brokers have egos.
You tend to start thinking that you can get this done yourself. We are constantly explaining to people why you really want to use the capabilities that Gallagher brings. That has, over the last couple of decades, really been something that we have really professed. Now, when you are sitting at home and you have got an opportunity and everything is virtual, you are looking to click that expert in, to be the person who looks like they can really orchestrate this thing for the client. It is both sides of the spectrum. I am more positive about it.
Hey, Pat. Thanks.
Thanks, Phil. Thank you.
Our next question today is coming from Yaron Kinnard from Goldman Sachs. Your line is now live.
Thank you very much. Good morning, everybody.
Good morning.
A couple of questions.
One, in P&C domestic retail, I think you've said in the past and reiterated today that your core account size, you place about $100,000-$250,000 of premiums per year for them. I'm just curious, as you acquire more capabilities, do you expect to be able to place more lines of business for them and therefore see that overall premium size per customer grow?
Mike, why don't you take that?
Yeah. No, that's a great question. This is Mike Pesch. Yeah, absolutely. I mean, the one thing that we've been able to sort of retrench on during COVID is the ability for us to educate our producers on the offerings that we can provide. That includes both a benefits offering, a TPA offering, and a wholesale offering.
It has really given us that opportunity to sort of pause and then look at our book of business, use our data, and spot opportunities within our own book of business to get a bigger bite of the apple. It is really part of what we are doing every single day, using our information as a weapon to go to our customers and say, "Others like you are doing this. And here is why we can solve a problem for you. And here is how we can solve a problem for you that you may never even have thought of.
You may never have thought of us solving that problem for you." It is really, I think, in that mid-market and then even in the risk management area, back to the previous question on how we are going about and why we are so optimistic, that I think pre-COVID, there was some apprehension to the virtual setting where you would bring in experts from across the globe who had a specific expertise because it was on a Zoom call or a WebEx call. It just did not seem clunky. There is just an acceptance on behalf of the clientele that that is the norm going forward. It gives us every opportunity to highlight the capabilities that we may not have been able to highlight as easily before.
Personally, I've sat in on more client and prospect meetings in the last six months than I probably have in the last four years, simply because I can and I can be a participant and engage with those clients and those prospective clients. Our experts are doing the same thing. It is kind of all coming together. The use of information, I can't emphasize enough how powerful that is to understand your book of business and where the opportunities lie.
I guess between that opportunity and the opportunities you see of taking additional market share in the large account business, how quickly do we see that $100,000-$250,000 premiums per customer average go up? Is it a 2021 event? Is it 2025? How should we think about that?
I can tell you that it's been occurring over the last three years.
Even before some of the major acquisitions and before COVID, we had been opportunistically hiring the kind of talent that we thought would be necessary to serve those customers. To give you an exact answer, I really couldn't. I could just tell you that our takeaways in the large account space are up significantly over the last three to four years. I think it's a culmination of a bunch of things. It's A, being able to bring in the right experts at the right time. It's B, being able to use our data. I think also from a marketing perspective, we're creating awareness around our brand that we really hadn't done so much in the previous decade that I think gives some comfort to those large risk management accounts that we are a trusted advisor and we are someone to be reckoned with.
All those things kind of coming together, I think, speak to an opportunity to take on more of that business. We're always very deliberate about how we do it. We really look for areas in a placement. The one I referenced in my comments was on a line of coverage that we are exceptional at across the globe. It's for a brand name that you would all know if I told you. It was an opportunistic way for us to demonstrate our capabilities on a very large risk management account.
Yeah. One thing too, just to uphile on that, we also just remember, we also like that $50,000 account. We like the ones that look at us. They'll buy their P&C via Gallagher. They'll buy their benefits. We're there with the owner and the operator.
The question about when do you see that sliding up? That might be a mathematical outcome. Really, I see both of those sides broadening. We have a really good Gallagher Select practice, which is kind of a smaller, kind of our small business practice. We have a high-net-worth practice where premiums for that high-net-worth individual might only be $30,000 a year. That's still a nice customer to have. I see it broadening that average more than necessarily sliding up. The math will have it slide up. Actually, in terms of clients, we've got the opportunity to broaden our efficiencies where we can put this on our common platforms, the way that we can service the business through our centers of excellence, the ability to leverage our technology across small and large clients. I would say it broadening out more than necessarily sliding up.
Okay.
Yeah, that's helpful. My other question just is around exposures, specifically in P&C brokerage. It sounds like you're taking a pretty kind of cautiously optimistic tone here on exposures, kind of starting to come back from their lows. It seems like just hearing other brokers talk about exposures, and I'm specifically thinking about one broker that's smaller than Gallagher and another broker that's larger. Both have kind of talked about the lag impact. I think the larger broker even talked about two to four quarters lag in terms of exposure impact from the economy. Is that not something that you are seeing? Are there other nuances that I'm not fully understanding?
We are seeing exposures contracting, but not like they did in April and May.
As we come up to annual renewals, how do I feel about the March, April, and May renewals next year on exposures? I think they'll be up from where they were in April of this year. Rates right now are covering that in almost all industries, regardless of whether it's a high, medium, or low-impact business. Rates are going up more than exposures are contracting. Right. You're not seeing the possibility of exposures declining even more from their kind of called mid-year levels? I don't know. We're not seeing it yet. I look at it every day. I mean, I get, listen, globally, we get this every day. I can tell you around the world exactly what happened to midterm adjustments. Renewals also, the renewal that we're getting, we look at that. We're 39% developed through the 15th of September. I looked at it yesterday.
Right now, I'm just not seeing rate not covering for the exposures or a significant deterioration in exposures behind that.
Got it. Thank you.
Thanks, Yaron.
Thank you. We do have time for follow-up questions. However, we must turn back to management by half past the hour. Our first follow-up comes from Greg Peters from Raymond James. Your line is now live.
Great. Thanks. Just two quick follow-ups. First, in Joel's comments, he talked about open brokerage and being a pretty robust environment. I was wondering if the percentage of premium for the percentage of premium dollar that goes to RPS versus the retailer has changed as the market conditions have changed.
Yeah. I mean, it's been pretty consistent. Obviously, we get some supplementals on the backside, which obviously improves as our growth improves.
It's traditionally across the board at two-thirds, one-third, one-third to the wholesaler, two-thirds to the retail customer. That's maintained fairly consistent through all periods.
That's our revenues. As for the premiums, yes. There would be more premium coming into RPS, though, too, right? Yes.
The split is still one-third, two-thirds. RPS gets one-third. The retailer gets two-thirds, correct?
Yeah. That's pretty generally across. Yeah. When you spread it across the broader market, yes, that's correct.
Got it. The other small question, I know you've been talking about risk management. You've been talking about the larger account business. Can you give us a sense of the size of your fee component of your brokerage business versus the commission? Is there a split that you are willing to disclose?
I think that we might actually put that in the financials then. We'll see if I can dig it out.
In the interest of time, let me see if I can find that, and then I'll—
if it's already disclosed, just have Ray shoot me the email. That's fine.
Okay. Yeah. We can do that.
Six months into it, it was $600 million versus commissions of $1.9 billion. So you can use that right there.
$600 million of fees versus $1.9 billion?
In total of $2.4 billion-$2.5 billion, $600 million of that's fees. Now, that would cover all the benefits business too. So we'd have to dig out the P &C business.
Okay. Your question around whether or not when we're paid on a fee versus paid on a commission, what the difference of that is, especially on a large risk management account? Correct. Yeah. I think if you look at that, I mean, it's really a discussion with that risk manager.
When you start getting into a larger account, you're looking at different unique services that they may need. You build that fee together in collaboration with the risk manager. There's not a relationship between the commission that you would ordinarily get on that account and the fee. That may be a starting point. Usually, at that point in time, you're talking about very specialized needs and services that are provided and then a negotiated fee if that answers your question.
It does. Thanks, Mike.
Thanks, Greg.
Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Pat for any further closing comments.
Thank you very much. Thanks to all of you for joining us this morning. We really appreciate it.
I think you can see from our comments that we are really proud of the team's performance this year. We still remain very excited about the future. We look forward to speaking with you again in late October during our third quarter conference call. Thank you again for being with us today. We appreciate it.
Thank you. That does conclude today's teleconference webcast. May this disconnect your line at this time. Have a wonderful day. We thank you for your participation today.