Good morning, everyone. My name is Ray Iardella. I'm Head of Investor Relations here at Arthur J. Gallagher & Co. I want to welcome everyone to our third quarter investor meeting, including those of you here in Rolling Meadows and those of you on the webcast. One sort of operational note to make, for those here in the room, if you have a question, please wait until we give you a mic so the people on the webcast can clearly hear the question and the answer. Before I get started, the other thing that I wanted to mention, we just handed out our updated CFO commentary document. We also posted the same document to our website at www.ajg.com/sept12materials. An 8-K regarding this information was filed this morning as well. Before we get started, I'd like to make a quick legal comment.
Some of the comments made during today's meeting, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. These forward-looking statements are subject to risks and uncertainties that may be discussed today or described in our reports filed with the SEC or our CFO commentary. Actual results may differ materially from those discussed today. With that out of the way, I'm going to hand it over to J. Patrick Gallagher, Jr., our Chairman, President, and CEO. Pat?
Thank you, Ray, and good morning, everyone. It's great to see faces that have seen us many times before. As I said to Elyse Greenspan from Wells Fargo, I should just do this now by hologram. I wouldn't age, and I'd just say the same things. Welcome to our headquarters. It's kind of a dreary day, and we had a lot of storms last night, so I'm really glad everybody could make it out here today. Our goal today is to lay out our strategy, as we've done with you many times before, to have our division heads come up and talk about their operating priorities, and to once again share with you where we think we are in terms of executing on the four things that you know we're trying to do every single quarter, every single year in and year out.
That is organic growth. We're very focused on organic growth. Every single week, month, we're checking that, talking about it, and I'm proud of the organization. I'll mention this again later, but we're a little over 5% organic for the first half of the year, and it feels to me like that's kind of where we're going to be as the year unfolds. Second thing we're trying to do, of course, is mergers and acquisitions. This is secret sauce. We've done over 500 of these acquisitions since 2002, and I can tell you that they're working extremely well. People ask me all the time, "How can you do 50, 60 acquisitions a year and change those cultures?" The secret sauce for us is that we don't change the cultures. 90-plus% of our due diligence is on the culture.
The numbers in the brokerage business and the risk management business are easy to check out. What you really have to figure out is whether the people in that firm have the passion, the desire to stay in this great business and help build with the capabilities that we bring to them locally. As we grow that way, we're becoming more local, not more global. We're actually doing both. We're the local broker with tremendous capabilities. The third thing that we're working on every single day, I think Doug will touch on this more in his CFO comments, is productivity and quality using our centers of excellence. We have over 5,000 people now in India doing incredible work. When we reflect on where we've come from on that journey over the last 14 years, I can give you one example, and that is certificates of insurance.
We test literally every hour in terms of how the quality of our certificates going out for our clients is. It's 99.5+. Why is that important? Because the quality of the certificates you issue directly relates to whether or not those people get to stay on the job. When you're talking to a client, that's an important thing. Virtually no other broker that I know of can even make the comment that they know exactly what their quality level is around certificates of insurance. Lastly, our culture. I'll touch on these four, but the culture is very strong, very unique, it's very global, and I'm very proud of it. Paul and I were talking just a moment ago, I think you all know this because you've been in these meetings a number of times.
About three years ago, we made a generational shift in our leadership. We had three significant leaders that had been together with me for 40-plus years, move into chairman's roles. They're still with us in those chairman roles, they're still doing great contributions for the company. We elevated three other people to significant roles. Actually, more than three. It was about 10 people into various areas. No press. Nobody called me and said, "This is a big mistake. You picked the wrong person." Those people have done a terrific job over the last three years of continuing to build the business. I feel really good about where we are, one of the things that Paul commented on I appreciate is we do, from the outside, look like a very stable organization, and we are.
I can tell you that the pulse in the organization, the drumbeat is incredibly positive. We've got a very talented team, as I said, a dynamic culture. We've got a very strong pipeline. I don't think I've ever seen our merger and acquisition pipeline as strong as it is today. Our average acquisition, as you know, we get press on some of the big ones. We don't do really very huge ones very often, but our average is about $5 million in revenue. When those people join us, they get really excited. Let me start with organic growth. The capabilities that we've developed in our niches, the talent that we're hiring. We had 500 kids in our internship last summer. Only 4% of millennials, when they're interviewed, will say that they have any consideration for insurance at all.
High tech is where they want to be, investment banking, private equity. Bringing 500 young people from college into the organization to learn about this great business, that's a real effort at growing our own, which we've done for a long, long time. Our data initiatives around organic growth, what we call white space. We look at accounts, and we can now identify, analytically, those lines of cover that we are not providing to individual accounts. That can be benefits or it can be property casualty or anything that they should be buying. That's an opportunity for us. There's hundreds of millions of dollars of lines of insurance that we are not writing on clients that have already decided to do business with us.
Our Net Promoter Scores are very high, we have a very good opportunity to go in and say, "If we're doing the package and the workers' compensation, why wouldn't we be doing your cyber and D&O?" We can do a really, really good job on that, I think we've got a lot of opportunity to continue to expand. Cross-selling is a key focus. Let me touch, in terms of organic, on what we're seeing in terms of pricing in the market. Prices across the property casualty spectrum are probably up something on the order of 5%. A big part of our job is to mitigate that. While you're seeing from insurance companies this, we're getting rate here, we're getting rate there, yes, we're sitting across the desk from a client who's saying, "I don't want to pay that.
What am I going to do?" You could take a higher retention. You can drop some coverages if you think that's prudent, you can manage your risk this way and not necessarily get the same increase. Don't take what you're hearing from insurance companies and just run it through our numbers. I do think, again, organic for 2019 feels like it's going to be around the 5%. I mentioned the fact when it comes to acquisitions that we've done 530 of these since 2002. It's a strong capability. Right now, we're sitting with 32 mergers completed this year, adding $300 million of annualized revenue, and we have about $400 million of annualized revenue associated with 50 term sheets that are either agreed or presently being prepared. Operational improvements, the effort is everywhere.
As we get bigger and bigger, there are more and more opportunities to standardize work and to move it to our service centers. What started off as an effort to help us on our E&O 15 years ago in working with our associates in India has now become well over 250 services provided on a worldwide basis at quality levels that just can't be matched in the field. That's also giving us the opportunity, once we've standardized some of these things, to robotize it. We have probably 100 robotic projects going on, I'll give you an example. Again, certificates of insurance. I'm making this up. There's 14 fields in a certificate that matter. If the robot can fill out all 14, the certificate is good, send it.
If the robot can fill out 10, send it to a person that finishes the last four and then send it. That person didn't have to do 14. They had to do four. Makes us way more efficient. We're going to see continued growth of those services. When I talk about culture, I like to slow down a little bit here. It's really interesting to me. Larry Fink and I have had a conversation or two. I like his messaging to the public companies year in and year out. State Street, of course, we pay attention to those folks as well. This whole thing on Wall Street, that companies today are recognizing that they should have a purpose higher than just making money for their shareholders. Well, I'm kind of baffled because that's what we've been about for 90 years.
My grandfather didn't start this business just to make money. He was protecting the future of the companies that were trading with him, and he took that very, very seriously, and he passed that on to us. My dad and uncles, the Catholic Church and the Our Lady of Angels fire is really part of the industrial accident that became Gallagher. You might not have heard of the Our Lady of Angels fire, Google it on your phone sometime today, and the picture that comes up usually first is there's a fireman coming out of a school with a dead child in his arms. 92 kids lost their lives in that fire. Seven-story brick veneer building. The sadder thing about that is that it was a highly ethnic Italian and Irish neighborhood, and the firemen and policemen that showed up, many of them were dads.
That left the cardinal with three big problems. He let every parish pastor do their own insurance, and there was none. The guy had, like, $10,000 in limits. He hadn't paid attention to his physical plan. He didn't know what other schools he had like this out there, and he wasn't going to let this happen again. The third thing was, how am I going to do my insurance going forward? I can't pay this loss as it is. I don't have the money for this, and I certainly don't know what to do. What my dad and uncles did is they helped the diocese through that with the help of a very strong CFO, and that's what put us on the track to self-insurance. Don't pay premium, start paying this loss. Pay your own losses going forward, most importantly, concentrate on loss control.
My point is, from 1927 on, our purpose as a company has never just been about making shareholders money. 1986, we wrote our mission statement, which is on the wall downstairs. We haven't changed a word of it in four years. We intentionally laid out our stakeholders in the order that are shown on the wall. The first stakeholder is our client. How are we going to help our client face their future with confidence that something like this isn't going to put them out of business? The second stakeholder is our employees. If we don't have the best employees, stable group of employees with real technical skills How are we going to deliver to the client? Our third stakeholder is the insurance company, says we don't take risk and we're never going to take risk.
If we get those three right, the shareholder will be well-served. 1984 we came public. We finished that year with a $79 million market cap. Today, we're just under $17 billion. This idea of having purpose beyond just making money, to me, it's like, "Come on in. Good. Let's all talk about it." That's not new to us. Ethical behavior. Eight years in a row, named by the Ethisphere Institute as one of the world's most ethical companies. Incredibly proud of that. There's only 130 of those companies that get named a year. There's thousands of applications. Applications are tough. These are not easy apps. We're drilling it into our people every day, take care of our clients, act with integrity and ethically, and basically, the stock price, your remuneration will take care of itself.
With that, I'll stop flapping my gums and open it up for questions. Got about five or 10 minutes. Elyse?
Thanks. Good morning. My first question. You let out and highlighted your strong feelings on the organic growth front. You kept the 5% outlook for the year, which does imply a little bit of a slowdown. Can you just give us In the back half year, sorry. Can you just give us a sense of what you're seeing? The other day, BB&T spoke at a conference and they said they raised their revenue outlook and basically said insurance is really strong in the third quarter. Are you seeing that or can you just give us a little bit of a sense? I know we're just into September, how the third quarter looks.
First of all, thanks for the question. We get up every day around here and understand that the game is about keeping what we've got and selling new business. We're very aggressive about that. That's why when I start talking about the four strategies or four pillars of our strategy, it always starts with organic growth. Remember, as I said, our job is to go out to these clients. Now we are having some firming in the market, so what we're doing is really coaching our team, get out in front of this. Get out there six months early and tell that client that's got property that's exposed to hurricanes and disasters, that it's not going to be a flat renewal. Let's work through it.
Two things, aggressively going after new business and working hard with our clients to mitigate the impact of hardening markets. I think a 5% number, 5%-6% number is actually a good number. I think it says that the team is doing the right thing. The other thing we will do by the end of the quarter is we will know the impact of rate, and we will know the impact of exposure unit growth, which has been running just a little bit stronger than the 1% it ran for literally years. Doug can comment more on that later. We are seeing a little lift from rate and as the market firms a bit, we should see more opportunities in things like RPS. You can talk to Joel about that today.
There is way more activity in the excess and surplus market than there was a year or two ago. Many more submissions. That tells you that people are starting to look for alternatives, that the regular markets are not performing and someone's looking at the excess and surplus market. I think as I sit in front of investors and I talk to our own team, I think our opportunities for organic growth are stronger than 5, but I think 5's a good number.
Great. Can I have my second question? You mentioned white space during your presentation. You guys have been talking about that for a while. Sounds like a great growth opportunity. You said $hundreds of millions of potential revenue. Can you just give us line of sight in terms of time frame? How we can think about that coming into numbers or just even high level figures, how you think about this earning?
Yeah. Well, the way I think about it is this, look, it's easy to talk about, it's harder to execute. The fact is that our average with a client is about three lines of coverage. We know that. Now, the average client is going to probably buy 12 lines of coverage. Add the benefits, add the voluntary, add the life insurance, add the retirement, go property, general liability, cyber, D&O, workers' compensation, automobile. I think I've just named 10. We should be doing all of that for the client. Look, that's philosophical. It's not reality. The fact is, we know that when we compete in the marketplace, 90% of the time we're competing with somebody that's smaller than us who doesn't have our capability. We're building strong capabilities around data analytics. We can go in and start telling clients, "People like you buy this.
People do not have umbrella limits at $15 million. They typically have umbrella limits at $40 million, and here's why. Tort inflation is real. I probably in the last year have heard of more umbrella losses settling at over $25 million than I've ever heard in my life. We've had auto losses at the $40 million level that weren't litigated. You go, "Whoa." You look at that and say, "You ought to have $50 million in limits, and here's why." By the way, once you've got $15 million of umbrella limits, the next $25 million isn't that expensive. It's things like that, conversations like that we're saying to our production staff, "Have the conversation." We're managing to that.
We're saying, "Look, put all these white space items in Salesforce." The conversation will go something like this: "I believe you got a half a million dollars of opportunities in your book of business." "I do not." "And so is never going to buy the car from us. He buys it from his brother-in-law." Take that out, fine, we agree it's $400,000. Now put that in Salesforce and close it out. Either win it or lose it, but have the conversation. Are we Up to four lines of cover for client yet? No. But where I sit, that's huge opportunity. Mark?
I wonder if you could talk a little bit more about the pricing. I think you said 5%. You said as much in the July update. Seems like some of these surveys that have been coming out lately have been pointing to acceleration, in 2Q, you allude to higher tort losses. Are we picking up steam in the third quarter? Are we still in an upswing?
Mark, what I still see is this. I think the market I grew up in was a market that was either soft and everything was going down, or it was hard and everything was going up. When it became a really hard market, the last one, 2001, after 9/11, prices were jumping 25% across the board. What I think has happened is the market's become very good at having many hard markets by line. Right now, transportation is difficult because the loss ratios in transportation are terrible. D&O is hardening, umbrella is hardening, workers' compensation is softening because people are making money in comp.
I think the difference between 2001 and today is the information that the CEOs and the management teams have is way better information, and they know where they're making money, and they can hit the gas in places where they want more and pull it in, and they can tighten it up and put on the brake in places where, wait a minute, we're getting hurt here, so start getting rate. You're seeing lines going up and lines going down. Having said that, I do believe the momentum is on the side of increases. From my comments in the second quarter, I think that has in fact strengthened. Which again, is good and bad news.
It's good news because our professionals and the strength of our capabilities give us an opportunity to go into a client who's unhappy and say, "We can help you," and move the client to us. It's bad because it creates a lot more work in the field. You got to go to the E&S market, you got to get a bunch more quotes, you got to show the client that you really worked hard and this is the best you can do, and they might not be happy with your efforts even after that. It's mixed news, but by and large, the drift is definitely to the firmer. Paul?
Back still on the market. Is there enough change in the market to shift folks back and forth between self-insurance and guaranteed cost insurance? Then, I guess somewhat similarly, about this time you start hearing people talk about flight to quality or flight away from quality. Do you see shifts among carriers for quality purposes as well?
I'm not seeing so much of that. To be honest, we kind of rank our carriers, tier 1, 2, or 3, 4, and we try to talk to our clients about moving away from tier 4 carriers up to tier 1 and 2. We do that on the basis of quality and strength of our relationship, and we still are trading a lot with tier 4s. The local regional comp carrier that is 25% less, the producer's not going to move that business. Having said that, yeah, now is when our capabilities around risk management and self-insurance, having the best TPA in the world, those open a tremendous number of doors. Definitely, this is the time when people start thinking, well, maybe I should be looking at taking a bigger retention.
Why pay the insurance company the premium if I can absorb some of my own losses and hopefully work with a TPA that can actually mitigate some of that cost and maybe be cost neutral? That happens to be one of our absolute strong suits, again, against a competitive population that's significantly smaller than we are. Anybody else? Drew?
Morning, Pat.
Good morning.
Excuse me. Lot of good news here, a lot of things to be happy about. Exclusive of macroeconomic issues, political issues, Trump tweets, et cetera, what company specific or industry specific things have you worried?
I guess, in all fairness, I do worry about a firming market with a generation of people that are working for us who've never seen that. There's nothing you can do worse than surprise your client. You walk in with a renewal that's up 22%, you haven't done any downfield blocking, and I'm just telling you're going to have a bad conversation and you're going to go out to competition. Training our people up to say, look, this is the realities of the market. You happen to be in Tornado Alley, or you happen to be in Hurricane Alley, and this market is firming. D&O is firming. Transportation, distracted driving is killing these carriers. You've got to be able to explain that. That worries me a bit as well. That's number one.
In terms of competition and what have you, I feel really good about where our team is. I'm not worried about someone coming and disrupting us. This idea that my answer to you should be InsurTech, it's not. I'm sitting watching the FedEx Cup a couple weeks ago, and every other ad was either an automobile company or it was an insurance company, GEICO, Progressive, State Farm, and Farmers. They're spending hundreds of millions of dollars a year, hundreds, advertising to the population, do business with us. Do I think Lemonade's going to take their franchise? Not so much. That's not one of my big worries. I worry about always maintaining the culture. We're 34,000 people today spread across literally 40, 50 countries. The good news is I travel there. I travel around the world quite a bit, and the culture's hanging together very well.
You don't ever want to lose that. You're just constantly working it. Is the management team talking about it? Are they out there leading by example? Are we maintaining, as Paul and I were discussing earlier, the stability of our team? Because that's critically important. Can we get more production talent, boots on the ground? That's one that keeps me up. We're doing everything we can from recruiting our own from the internship program, trying to recruit seasoned professionals. Our HireRight program is taking seasoned sale talent from other industries and bringing them into insurance. That's been very successful. Making sure that we've got enough people out telling our story every day, that the opportunities come our way, and that we continue to grow the company.
What I worry about, we all are into risk management and enterprise risk management, and all us as public companies have heat maps, and you talk about what are the risks out there, and we've got compliance people, and we're dealing with OFAC, and all these new things, right? It's all on the heat map, and you're talking about it, and what I always worry about is what haven't we talked about? I never saw Eliot Spitzer coming. That was the worst experience in my career. The attorneys generals across the-- We had 46 active subpoenas. Never saw that coming. Contingents and supplementals were part of the industry for 100 years. All of a sudden, this is the worst thing that could ever happen, and boom, we're going to put you out of business. That stuff, I roll around at night thinking about that sometimes.
What am I not thinking about? All right, I think my time's up.
Thanks, Pat.
You set?
Yep.
Thanks, Ray. Thanks, everybody. Appreciate you being here. Great to see all of you again.
Thank you.
All right, next up we have Mike Pesch. He leads the U.S. retail property/casualty business. Mike, the next 25 minutes are yours.
Thank you.
Thank you, Ray. Good morning, everyone. Good to see everyone. As Ray said, I'm Mike Pesch. I am responsible for our retail property/casualty operations here in the U.S. I've been with the company for 27 years. Like many of us in leadership roles, I started out as a producer here in the Chicagoland area. I know what it's like to sit in front of a client. You heard a lot of questions talking about firming market, challenging market, whatever you want to define it as. I've done it. I've been through that process before. I'll spend some time talking about what we're doing in the organization to help coach, mentor our folks through this process to make sure they're ready to have that conversation with their customers.
The U.S. business today is about $1.4 billion-$1.5 billion in annual revenue, runs upper 20s in margin. We're looking at organic growth right in line with what Pat was describing earlier this morning, 5%-6%. We've got about 5,100 employees scattered across what we define as 10 different geographic regions across the U.S. I've got 10 divisional heads or 10 regional heads that run that business for me. As far as maybe going back to the overall marketplace, I would agree, Pat is right. We are seeing firming in specific lines of coverage. Most notably property, auto, public D&O, to name a few. We are seeing continued softness in workers' compensation. Casualty is iffy, depending upon what industry you're in, depending upon what part of the country you're in, depending upon what kind of capacity that you need.
It ebbs and flows a little bit by that nature. All that said, I think it's definitely something that we're dealing with every single day, we're dealing with it because what we try to do, you've heard me say this before, our customers tend to be middle market, upper middle market customers. We touch really everything from small business on up through Fortune 500. If you really slice us down the middle market, upper middle market companies are our bread and butter. In that, we compete 85%-90% of the time against one of our smaller competitors. For our folks on the street, it's a consultative sale. How do we convince them to change what they're doing? How do we convince these buyers to fire their existing broker, who happens to be smaller than us, and hire Gallagher?
It gets back to a consultative sale. Everything we do, everything we preach to our folks, everything we talk about in terms of defining who we are, centers around that consultative sale. Why is that so important? It becomes extremely important, I'll get into it in a second, when you're going through a challenging market. When clients have questions in their mind, why am I getting an increase like this? What does this mean? What other options do I have? You heard Pat talk about, we don't necessarily get the direct lift in your models of a 5% lift in the marketplace because we are constantly coaching our clients through the different options that they may have through program structure, through eliminating claims, taking on a bit more risk.
I'll get into that through the four things that we all want to focus on, that is organic growth and the strategies around that. Talk about mergers and acquisitions and our pipeline specifically here in the U.S. what we're doing about it. Talk about productivity and quality, I'll finish up maybe with some stories about some culture. From an organic growth perspective, I'll just touch on a few things. Back to that consultative sale. Several years back, we were all out in the field selling insurance, doing it the way that we always had been doing it, leveraging the tools and resources that we had as an organization. We had a little bit different way of approaching it across the entire footprint here in the U.S. We developed a value proposition that we call CORE360.
CORE360 , for us, helps us define for the client what are the six things that we do for them from helping them with program structure to their go-to-market strategy, to helping prevent losses and eliminate claims, to contract liability they may be faced with. All these different things fall back into that consultative sale. That's really important because that helps us differentiate ourselves from the 85%-90% of the time when we compete against smaller competitors. It's really, really important in how we plan to grow the business. The other thing I'll touch on from an organic growth standpoint is the relationships that we have with our carriers. You've heard us talk about Smart Market and the platform that we've built.
It's an electronic way for us to communicate with our carriers to make sure that the clients that we have are most appropriately put with the carriers that have the appetite for that business. We have about 18 carriers that are on our Smart Market platform. They pay a fee for us for that benefit, it eliminates an inefficiency in the market that exists today, which is the carriers are constantly trying to match up their appetite with the book of business that we have as brokers. We don't centralize our marketing, the ability for us to use a technology platform to do that is really, really helpful to not only eliminating the inefficiency, but getting faster to the marketplace. Mentioned in Core 360, that go-to-market strategy. How do we differentiate?
When I ask a smaller broker or a prospective client what their broker, who may be smaller, what their go-to-market strategy is, it's very difficult for them to define. How do I know who might be interested in my business as the client? The smaller broker might say, "I have these two other clients that are just like you, I've gone to this carrier and that carrier, I'm going to go to those two carriers as well on your behalf." If I have a technology platform that can match up the appetite of those carriers at that appropriate time, especially in a challenging market, with that client's business, that's a unique advantage.
What we're seeing is that those carriers that are on the Smart Market platform are actually growing at a faster pace with Gallagher's than the carriers that are not on that platform. In addition, the carriers that we measure their results, what they post in terms of their results, how fast they're growing against how fast they're growing with us, in every single case, we're growing faster with them than they are growing in their stated results. We know the technology works. It helps connect willing buyers and willing sellers. I've talked in the past about product development, we have about 15 what we call advantage products. These are products that we've built, again, to help our producers ultimately help our clients deal with challenging lines of coverage.
Lines of coverage that, again, we talked about how do we get our producers, how do we get folks that haven't seen a hard market or haven't had to deal with it, to be able to have all the right tools, all the right products available to them at their fingertips? The advantage suite of products has helped us do that. Just recently launched a workers' compensation product, and we're expecting that to have tremendous results. We do think that there will be eventually some hardening in the work comp market, but right now it's soft. We have to think about what might happen two and three years down the road, and that's why we're launching the product now. We've talked a lot in the past about cross-selling as an organic strategy, how we work with our benefits counterparts.
For us, again, this is back to coaching and mentoring, back to getting our producers to understand what the difference is between working at Gallagher and working for a smaller firm or another firm that doesn't have an incredible benefits platform or doesn't have an incredible property and casualty platform. How do we put the client in the middle and coach our producers and our clients to help our clients through some of the most difficult situations on the benefits and the P&C side? I'll give you an example. I keep this article on my desk because I frequently reference it. Bill Ziebell, who you'll hear from today, who runs our benefits operation, and I talk to our producers all the time about when we think about cross-sell, it's about solving the client's problems.
Everyone knows that the opioid crisis is a challenge in the U.S. today. The National Safety Council puts out these survey results. Only 17% of employers that they surveyed feel extremely well prepared to deal with the issue of the opioid crisis. 38% of them have experienced absenteeism or impaired worker performance, and 31% have had an employee have an overdose, arrest, or a near miss of an injury because of an employee opioid use. That's a problem. That typically isn't in the discussion point for a property and casualty conversation. We're talking about workers' compensation. We're talking about solving their problems through claims mitigation or loss control. On the benefits side, Gallagher Benefit Services has a whole team of people that specialize in pharmacy benefit management, helping their clients understand whether or not there's an over-prescription of opioids in their workplace.
When we go talk to a client, it's not simply about me figure out how to make you a safer environment. That's not the root cause of the problem. The root cause of the problem is the fact that they may have employees who are on opioids that's causing them to miss work or potentially have an injury when they're at work. That's the kind of training that we go through to help our producers understand that it's about the client. How is Gallagher in that consultative sale, how can we help them understand that we have the solutions that they need to solve their problems? The last component of organic growth is, and Pat talked about it, is technology.
I've talked about this before, helping our clients and helping our producers understand what others are writing, what they're paying for lines of coverage, who they're writing it with, what limits they're taking, what retentions they're taking. Gallagher Drive is our internal and now external platform from a technology standpoint to leverage our data to be able to help our producers help our clients make better decisions. It's also, and it's a good segue into M&A, we've now on Gallagher Drive taken inventory of all of our production. A producer and a new producer who may have just come to us through M&A or a producer who might be new to the business that we just hired, comes to the organization and gets an opportunity, has a connection with a concrete contractor. How do I know who else within the organization writes concrete contractors?
Who do they write them with? Where are they located? It all of a sudden makes 5,100 employees very small. It helps them connect, helps them get connected with our colleagues so that they can bring the right expertise to the point of sale. It helps a merger partner not be an island, because when we talk to potential merger partners, we want to integrate them. We want to get them to be a part of our organization as quickly as possible. That's the secret sauce in our M&A game. How quickly can we get them up to speed on where our experts lie?
Now Gallagher Drive gives us that opportunity to connect our newest producers, either through M&A or new producers to the organization, to all the information, all the experts that they need to know and to meet and to bring out to their prospects and clients. On to M&A. Completed 21 acquisitions last year. We've done nine so far this year. Our pipeline, like Pat mentioned, is extremely strong. Just to give you some perspective, I know I've had this question before about competition in this market and what does that mean to us. We have about a 6 to 1 ratio of meetings that we have with potential merger partners and ultimately those that we get to a term sheet type status. What does that mean to maybe all of you?
What that means is that our folks are out there actively engaging with people every single day who might want to perpetuate their business through a sale to Gallagher. Why is that important, that 6 to 1 ratio? Because we always say we kiss a lot of frogs. The most important, the litmus test for us in this business is the cultural match. If we don't get it right from a cultural match standpoint, then we haven't done our job. We're constantly out there meeting, getting to know their businesses, getting to know who they are, seeing if they're a great fit. That 6 to 1 ratio is really important. There's 29,000 independent agents and brokers out there in the market. Our inventory is significant, but we've got to make sure we get the right ones in the door. Why do they want us?
Of course, they want access to our niches. They want access to our expertise. We're constantly rolling out new tools and resources. I mentioned Gallagher Drive. We're in the process of discussions with a fairly sizable firm, about $20 million in revenue. I don't know where it's going to go, but it's going favorably thus far. We're sitting in the meeting, I asked him, I mean, $20 million in this marketplace puts him squarely in the top 100. Why do you need to do this? They're fairly young principals. Why do you need to go through this process? His answer was, "I can't keep up with the level of investment and reinvestment that you are doing in your business.
I could try, I can leverage everything that I have, but I cannot keep up with the level of reinvestment." Those are the kind of individuals that we want in our business. Those are the kind of folks that come in, take advantage of Gallagher Drive, take advantage of the tools and resources that we have and that we make at their disposal. Those are the ones where that one and one plus one truly becomes three. We always like to say, anyone can get bigger. You can buy a lot of firms. There's a lot of companies out there getting bigger. We're trying to get smaller. We're trying to deliver the tools and resources at the point of sale where their clients are in the geographies that they exist. By doing acquisitions, we actually get smaller if we can deploy those resources and tools and expertise.
Productivity and quality. We are actively in the U.S. here using our teams abroad to help service our business. Pat, I won't reiterate it, talked about the quality of our certificates of insurance. We're constantly looking for other angles, other ways to work with our teams over in India to make sure that, again, not client interfacing items, but making sure that we're optimizing and making sure that we're efficient as possible by using the strength of the teammates that we have over there. It's been very prominent in our small, what we call Gallagher Select business, which for us is about a $50 million-$60 million business. This is accounts that pay us under about $5,000 a year. It's helped us become really effective, really efficient.
Actually in that area where we were typically fairly dormant, we wouldn't typically grow that business because small businesses, as we all know, tend to go out of business more quickly than larger businesses. We would stay pretty flat. We bent that curve. We now grow organically in our small business. I think it has a lot to do with the fact that we are as productive and as effective as possible. We're now taking that to personal lines, which again, is probably another $50 million-$60 million business for us here in the U.S. We think we can pick up some additional efficiencies in personal lines. Then the last thing, our culture. Pat talked about it, gave some great stories from our 500 interns. Interesting today, this afternoon and this evening, we have what we call our Gallagher Got Talent.
We do our own version of the TV show across the country, where we have people competing, then we bring them here to Rolling Meadows for their final showdown. To me, that speaks to our culture. The fact that our teammates want to work together, our teammates like competing with each other, but they also want to be able to give critical feedback. They like the spirit and the fun behind it. I'll tell you, every Sunday, I put out an email that goes to all of our employees about the top sales from the previous week, and I'm always extremely impressed when I look at it, because over 50% of those sales have typically two to three different individuals from all across the country. That doesn't happen by accident. There's nothing that I could say or do that says we have to work better together.
We have to team up better. They do it naturally, and they do it naturally because I think we get it right when we buy firms that are cultural fits, that want to be collaborative, that want to work together, and want to find the expertise to benefit their clients. With that, Ray, I'll be happy to take any questions.
Any thoughts on the economy? Seems like there's been a lot of discussion about the trends. How do you see it? Just as strong, stronger?
Yeah. I would tell you, I think, when we think about the economy, clearly we're a little bit of a guiding light, I suppose, because our clients give us predictions. For workers' compensation, they're giving us predictions on what their payrolls are going to be, predictions on what their sales are going to be. I haven't seen any softness in that. Now, we don't necessarily measure it to the dollar by client from an exposure standpoint. I haven't seen in our book of business, in our renewal book of business, that softening. I think it's right in line with the economic, whatever you want to call it, tailwinds that others are experiencing. When they start predicting lower exposures, obviously that gives us a little bit of a different thought, but I'm not seeing any, Mark.
I know Pat addressed his views of the market and what he's seeing with pricing. Can you just go into a little bit detail what you're seeing within your business, how that's trended Q2 into Q3 forward expectations? Are you seeing any carriers? Typically, when we have these more firmer markets, you see some carriers trying to buck the trend, undercut, and grab share from peers. Would you say that this is more a rational market where we're not necessarily seeing that? That color would be great as well.
Yes, Elyse, absolutely correct. I think it is more rational. I will tell you, property, Dorian didn't really have an impact. Obviously, we saw that in the news. It kind of skirted the U.S. We're not through the hurricane season, so anything can happen. Property is still, especially coastal or quake exposed or right now flood. One of our advantage products that we rolled out in the beginning of this year was a flood trio of products because we do expect that to be a real challenge for a lot of our customers. I would say, property, we're seeing anywhere from the low single digits upwards into double digits, depending upon their exposure base.
Property is one of those coverages that you can easily start to take on a bit more risk because you don't typically have the frequency that you do with a casualty type exposure like auto. You can get away with taking on more of your own risk to minimize the impact of the rate. Pat's comments about that are exactly right on. We're seeing a lot of capacity challenges in public D&O. There's now only 800 or so publicly held companies that we track. 8,000, I'm sorry. There were 8,000, now there's 4,000 publicly traded companies. It's a smaller population of companies that are getting the plaintiff's attorney's attention. For us, that's been a challenge, and it's definitely been a challenge for our underwriters. Auto is a challenge.
I was with a prospective client on Friday who has 500 vehicles, and they transport individuals with disabilities. His first, he said 1/1 renewal, his first indication from his incumbent carrier was taking the premiums from 8,000 per unit to 12. You obviously can imagine he's pretty concerned about that, pretty panicked about that. You can't pass all that cost onto the customer. Again, that's where creativity and placement, creativity in how you structure the program based upon what risk level they can take on becomes really, really important. That's where that consultative sale becomes important. I do want to take a step back, and this isn't answering your question. You asked a question, I think, about white space earlier and how that plays in and why maybe this can be a challenge.
Well, when you are talking about white space, I look at it in two different buckets. You have got white space that is coverages that people have to buy that we don't sell to them. They are buying them from somebody else. They are have-tos. Their workers' compensation, their property, auto, they have to buy them either legally or because they may have bank covenants, what have you. Then there is the want tos. When market is firming, the want tos become a bit more challenging to sell. That is your cyber coverage. It could be your environmental coverage if it is not required by law or by where they are located. The white space becomes a bit more challenging to close when the market is firming, because there is typically a dollar spend that they have got budgeted for risk management and insurance.
They can start playing with retentions, playing with deductibles, but the want tos become less important. Now, that is our job as a consultant to convince them that they need to, even if they don't see the risk themselves. We deal with that every single day, most notably with cyber and the cyber exposures that all of our customers have. The fact that not every customer has some form of risk transfer mechanism when it comes to cyber in this day and age is perplexing to us, it is a reality, and it is because it is a want to, it is not a have to. I don't know if that answers your question.
Yeah.
Sure.
Can you talk a little bit more about specifically how Smart Market works?
Yeah.
Do all submissions go into Smart Market? If not, when does a producer decide to put it in? Maybe how big this could get, I don't know if you publish the fee that the carriers have to pay to be on the platform.
I'll answer that second question first. We don't publish it. We do have an idea of how big we want it to be. We don't want it to be all-encompassing with all carriers that we trade with. We do want it to be very because then you start to dilute the benefit that any one carrier would get. It aligns very well with our carrier market share in terms of the number of carriers that we have. Specifically how it works is, all of our clients, they become anonymized when they go into Smart Market, so they don't see the name of the customer, but they have very specific data, the size, employees, where they're located, what they do, generally speaking, information that would help that underwriter decide whether they would be interested in it.
That is really taken from our what we call our Applied Epic system. That's our agency management system. That's downloaded into Smart Market. The underwriters have a screen of that. It's all on your iPad, on your iPhone. It's on their computers at work, they can flag any opportunity that they think that they might want. Once they flag it goes into a queue, we have personalized service representatives that sit there and look at that queue and say, "Okay, Travelers has flagged this account," then they make the connection with the producer. "Are you going to market? If you're going to market, Travelers would be very interested in providing a quote." Now when that producer goes out to do their strategic review with that client 90 days out before the renewal, what are we going to do? We've heard the market's hardening.
Some challenges that we may have. What do we do about it? These are the seven carriers that have already indicated that they would be interested in your business because they've flagged those accounts because they're typically flagging them 120 days before the renewal to be well prepared to provide a quotation and receive information. It literally gives the underwriter or their designee a lens inside our book of business, then the ability to electronically flag those opportunities.
Great.
All good.
Thanks, Mike.
Thank you, everyone.
Next up, we have Tom Gallagher. He leads our global property casualty brokerage business, and he's going to spend some time talking about our international operations. Tom, the floor is yours.
Thank you very much. Good morning. Nice to see all of you again. This group gets smaller this quarter. I wonder why. All right. Ray has asked me to spend time talking about our international business. When we take a look at the international business for Gallagher, at the end of 2018, it was about $1.4 billion worth of revenue. Obviously, with some of the mergers that we've done this year, it's going to get bigger. You've got the Stackhouse Poland acquisition in the U.K., you've got the merger with the JLT team in the U.K. It's going to get bigger. Last year, Ray's stats will tell me that we finished somewhere on the order of 32% of our brokerage revenue globally outside the U.S. If you look at it on the brokerage and risk management, it's about 27% of our revenues.
We basically have two separate businesses that we're running outside the U.S. It's a wholesale business like we have in the U.S. and our London specialty business, as well as our core retail business around the world. Our major geographies, obviously, are the U.K. We've got a retail business. It's about $400 million. We've got our specialty business, which is about $300 million in the U.K. Both those are growing. It's really important for me to be able to make sure that you recognize that we try to take our game plan and our playbook from the U.S. and bring it there to our retail team. We're truly a community broker, and that differentiates ourselves, and I'm sure I'll mention that again a little bit. Looking at London specialty, we've got a tremendous business in there today.
The addition of the JLT Aviation puts us again as one of the leading forces in various product groups inside of that marketplace. We are second to none in energy, second to none in construction, marine, fine arts, specie, aviation. Our PI team has done just a tremendous job. When we do talk about hard markets, that is one of them that is a little bit on fire right now. Moving to Australia and New Zealand, combined about a $350 million business between the two countries. The Australia business, if you look at it, again, community-based, more than 30 individual retail offices. New Zealand, again, dominant player in the country with more than 30 offices that we have. Think about the size of New Zealand for a moment. It's the size of Wisconsin.
There's about 4.5 million people in New Zealand, and we've got 30 offices truly committed to being a community broker. Canada brokerage, now up over $200 million with the Jones Brown acquisition. It's a really strong and growing brand for us up in Canada. Again, we've got more than 20 offices. That's a theme for us. Many of our competitors are trying to consolidate, consolidate, and squeeze the local branches out of their businesses. We do exactly the opposite. Guys running a good business in the community can drive organic growth. We like them. We want them. We want to continue to support that business. If they can't run it, we have no fear of just shutting it down and moving on. I think as we look at our retail business in the U.K., Canada, and Australia, we've done exactly that over a period of time.
Other geographies. Obviously, we're down in South America. You've heard us talk about the fact that we are looking at a partnership, in Eastern Europe with Renomia. Renomia has got direct offices in seven countries, or excuse me, six countries, and they have partnerships like we have partnerships throughout the Eastern Bloc. It's a great partnership for us and an opportunity to be with the largest independent broker in that community. In India, you heard us announce that we may do a-- once completed, we will be in partnership with a broker in India. Rules are changing in terms of foreign ownership for brokerage houses, so the opportunity for us in a market that is nascent in terms of insurance to grow alongside of them as they grow is tremendous for us. Great organic opportunities in both those jurisdictions. You know about South America.
Almost everywhere that we go in the world, we leave equity in the hands of our partners. We want them to remain interested and committed to our business. We find leaving equity in the hands of our partners, even when we go to majority, is something that pays dividends in the long run because we have very aligned interests at that time. Let's turn to organic growth. Mike had the opportunity to talk about the U.S. playbook. You've heard Jim Gault talk about it for years. What are we trying to do? Figure out ways to continue to drive the business forward in this marketplace to dominate what we're doing in the middle market, low end of the upper market, find ways to drive the business at various levels. You heard about Gallagher Drive. You know about our Smart Market.
You know about the practice groups that we have running. We're doing exactly the same thing overseas. We're trying to bring Smart Market, CORE360, Gallagher Drive into all of our businesses around the world. Over a period of time, we will, because we know this is a tried and true business plan and model for us because we are actually in the communities that we serve. If we could just focus on specialties. Give you an example. Yesterday, was one of two, we had a trade fair in the U.K. 54 of our specialisms in the U.K. exhibited at our trade fair for ourselves. I didn't know we had 54 distinct things that people would want to be sitting around and talking about in a retail and wholesale business.
It's really exciting because the team is beginning, on their own, to understand the power that we have in that marketplace and what differentiates us from the competition. Was really well received yesterday. Got another one coming up in a couple of weeks. It's just us talking to us, introducing each other to what the opportunities are. You can post that online all you want, unless you get people talking to each other and saying, "I got this idea," frequently, you miss it. I always tell the story about a guy in the U.S. who had a grocery program. He had a unique grocery program. He had this program running for 15 years.
Once a quarter, he sent out an ad that looked like an ad for anything that you would get on TV, a grocery cart with fruits and vegetables in it, to say, "Hey, I'm in the grocery business." People every quarter in our company would say, "Oh, I didn't know we had a grocery opportunity, grocery business niche." The reason is, unless it's in front of you at a time when it's of value to you're busy taking care of your clients, and sometimes you forget it. By holding a trade fair like that in the U.K., it gives everybody the opportunity to lock into what is it that we're trying to accomplish. You'll see the same thing happens in the U.S. We do it once every couple of years. We have a massive get-together where we talk about ourselves.
We're preparing for it next year already, but we just are exhibiting to ourselves what are the strengths that we have. That's a global meeting, a global trade fair, if you will. Not only that, one of the things that we really try to understand, it's become very much in vogue right now to talk about it's not all just about the shareholder. Right? You all know it better than I do, although it always came out over the last month. You take a look at our mission statement. When I travel all over the world, our mission statement says our first priority is the client. Our second priority is to our team. The third priority is to our markets. If we do all those things really well, we will be able to take care of the stakeholders.
That resonates, particularly when you're traveling in small communities in Australia or small communities in the U.K. The people there, it resonates because we're not just a great big faceless U.S. business. They understand that we know what they do, that we care about the client. It makes a huge difference in terms of retention, client retention for us. With client retention and teammate retention, people like to come and work with us. The other things that we do inside of our opportunities for organic growth. Imagine Mike talked a little bit about it, Gallagher Drive. We're just beginning to get started on this. Where can we take this idea over the course of the next decade with the data that we have? The ability to aid our clients, provide them a differentiated product.
In the age of digital, what is it that we can do to give them greater insights about what and how their business relates to the others in the industry that they're in? Huge opportunities for us, there are very few people that can actually do this. Pat talks all about the 30,000 plus insurance agencies. What agencies around the U.S. can do that today and have the kind of data that we have? Very few who are actively focused on that marketplace, what is it that we can do to enhance the information for our clients. We've been working hard on the brand.
There was a time, I don't know whether or not Pat has talked about it with you, but there was a time when even in Chicago, when we put our logo up at Wrigley Field, people were like, "What is Gallagher?" Just by putting insurance underneath the logo. That's what you are. Been working hard on it. In the U.K., our brand gets picked up in the newspapers almost every day, all year long. It's a tremendous opportunity for us to build presence inside of that community. The Premiership has been unbelievable for us. Some of the guys in the U.K. have actually talked about it's the proudest moment they've ever had, that their company is the sponsor of the Premiership in the U.K. All that's trying to do is provide support for the things that we're rolling out.
As it gets down to it's all about the core things that we do. It's the blocking and the tackling and the building of good sales momentum inside of our business, whether it's in the U.K., the U.S., Canada, Australia, or anywhere else. Are we doing the things we have to do day in and day out to help drive the company? We focus a tremendous amount of energy because being a community broker, being very distributed, we've got to have good discipline around the process so that we can do it, and it's been successful for us. We talk about HireRight in the U.S., about bringing in people from other industries who know how to sell and teach them insurance, trying to get that exact kind of thing going in the U.K., Australia, and New Zealand as well. Mergers and acquisitions.
We've done a couple of big ones this year. Not interested in planting flags all over the world. I'd rather be in partnership where we can be in partnership. There's some places that we would be if the right partner decided that they would like to join us. Otherwise, not in a hurry just to start planting flags. We've built a good business and proud of where we are, we will continue to expand carefully and with the right partners. Why do they want to merge with us when people come to us? Mike talked about it. I'm sure Pat talked about it. It's the power of what we're building. It's the brand. It's the reputation. It's where we're going as an organization. I've told this story here before.
There was one guy inside of our U.K. business when we did the Oval acquisition five years ago, and he said, "I've never moved. I've never left one employer, and I've had to put on seven different jerseys." When they come to us, they know that is going to end. That treadmill is going to end. They can be part of an organization, 92 years strong, trying to continue to take ourselves forward faster, greater support for our clients, greater support for our teammates. They want our tools and our platform as well. There's so many things that we're able to invest in, as Mike said, that they cannot. They're looking for an opportunity to continue to build muscle, and we provide a great platform for them to do it. Productivity and quality.
We've talked about the things that we're doing in the Gallagher Center of Excellence. Now it's taking that, utilizing that to robotize, utilizing that for greater data insights, using that so that we can provide better product and better quality to our team and to our clients all the time. What we've done in the U.S. in terms of agency systems, going on in the U.K., going on in Canada, going on in Australia and New Zealand, and we just continue to build on the things that we've been doing in the U.S. Making it local, though. We haven't implemented a single global system. We know that what works in the U.S., the Applied Epic platform works in the U.S. very well, doesn't mean we have to drive Applied Epic everywhere.
The Acturis in the U.K., the Acturis platform for us at this time in the retail business is the best. We use it and enhance it and try to replicate the positive things that we have in the U.K. business, in the U.S. business rather, to be able to deliver greater service to our team and our clients. We always talk about culture. The culture really comes down to everybody owning the business. For me, we talk about the fact that we're brokers run by brokers. We talk about the fact that we've got the Ethisphere Award. My message to the team as I travel, and I travel a lot, is, "Team, you're the culture of the company. You got to believe in it. You got to own it.
You got to help us maintain that culture everywhere we are." I'm about at 20 minutes right now. What other Differentiating ourselves. Products and geographies, our service to our clients, our brand, and our carrier relationships. They're really, really important to us, and we just continue to build momentum over the years. With that, I'll turn it over to any questions.
Good morning. How much is the JLT acquisition a template for more deals of a similar type in both internationally as well as growth into the larger account businesses?
That is hard to say. Would I love our competitors to call us up and say, "We've got a problem, but the regulator won't let us maintain this particular chunk of business, and Gallagher would you buy it?" I think we'd love that every day. The phone hasn't rung since then. If there were an opportunity out there where somebody said, "We've got a problem with the regulator," or, "There's a particular component of this business that we can't have. Are you available?" Absolutely, we're available. Absolutely. If it's the right business. We've done a great job of keeping mercenaries outside of the company for 92 years. We don't want to screw that up. Getting to know these guys, they're really good guys inside of the Gallagher Aerospace team. Very excited about where they are.
You think about all the noise that's going on in the London marketplace right now, our team is really doing a good job of staying stable.
I had another question relative to JLT. Obviously, still early days, given that the deal just recently closed, can you just have some high-level views how that's going in terms of growth, and the revenue potential there from when you agreed to the transaction in March?
I can tell you we picked up a great new piece of business in the last week. The team is very stable in the U.K. and around the world. When you think about the numbers of people that joined us to have just a couple of defections in the last four months, virtually everybody else around the world has been pretty appreciative of what we're trying to accomplish. You read the papers, you know what's going on in terms of the aviation marketplace. That's a good time for us to be joining that business in one of the elite ranks. It really is. I see great opportunity for us short-term and long-term.
Now, we're not considered to have a significant presence in the U.S. aerospace world at this time, with the leadership of the team that is from JLT Aerospace in the U.S. combined with our team, we will continue to develop surprising strength in a lot of areas, which would be great. Be good.
Could you just give us a little bit of a sense of what you're seeing pricing-wise internationally? Just anything third quarter, a change from the second quarter or just the momentum that you see for the balance of the year.
Without any question, it's a firming market. Pat and Doug have very specific terms that they use. Buying the PI marketplace in the U.K., it's firming. The PI marketplace in the U.K. is not firming. It's getting more difficult all the time, and that's not changing. Capacity in London, still being restricted, which is causing some impact on the rate. I think the key is, what are we paid to do? Every day we wake up and have to go to our clients and say, "Oh, you're going to get a 20% raise, increase in your prices?" They're not happy about that.
Our objective is every single time we go on out to find a way to mitigate the increase in expense that our clients could have, whether that's increases in retention, whether that is lowering the limits, whether it's finding different vehicles that are loss-based vehicles, our job. That's the same everywhere. Are you seeing some firming in those places? Yeah. You are.
Talking about bringing some of the U.S. capabilities to both existing and new markets you go into, what is the general ramp-up? What are some of the general process of integrating those and the considerations? Are they driving organic growth pretty immediately, or is it more of another ramp up once they're integrated?
Interesting question. It takes time. If you go back to our business in 2015, when we made the larger acquisitions in the U.K., why did the private equity firms sell out at that time? The growth engine was sputtering. What happens for us when they join us, is we sit down and we try to get a good leadership team together to try and focus on what's core. Your worries about next week's payroll are over. We got to be thinking about driving organic growth, delivering an acceptable margin to us. All right? We know what we hold the team accountable to in terms of margins. Sitting down with those two components of it's developing a good plan.
The example I can give you is that we've got a guy in the U.K., I'll give a kudos to him, his name is Lee Cook. Lee Cook has traveled to all 70 offices inside the U.K. as a sales teacher, leader, and manager for our business. We've actually introduced a process of every single week having sales meetings in the U.K. in our retail business. That never existed before. Never existed before. We're pumping out sales grams, sales information, support information. We're trying to make certain that the team recognizes all of the trade fair, all of the different opportunities that we have, and being very real for these teams. We're doing the things that we do in the U.S., where we're consolidating the small business into groups that could do a better job of retaining it.
We're trying to capitalize on the strength that we have inside the London marketplace. A merger takes time. We walk through a process of onboarding them, integrating them, making them feel good about the company, getting them to own the fact that they're responsible for driving the organic growth in that business. They've been very successful about it. We've got really good, committed leadership. It makes my job pretty darn easy.
Any, excuse me, body language on economic trends in your markets? I don't know if you mentioned Brexit right at the start, what do you think about the Brexit?
I think the best thing I could tell you about Brexit is, for whatever eventuality, we are preparing ourselves, and had been preparing ourselves for 2 years. Come October 20 or 31st, one way or another, if it gets delayed again, I don't know what's going to happen. What I do know is that we're prepared. If it goes through, we will be running a business that is acceptable to the EU on the 1st of November.
What do I see happening in terms of the team? This is just Tom speculation. I think once resolved, one way or the other, you'll see all the tension that business has in the U.K. and even Europe start to be released. I think, the fact that the guys, everybody's worried about it. It doesn't matter if you're in continental Europe or in England. What's going to happen? Everybody's just in a waiting period, and I think that tension will be released when it's finally done.
How about the economic trends?
Mike put it perfectly. We're not seeing it day after day after day inside of our clients, reducing payroll, reducing sales. One of the fears that I have is that our papers talk us into these things. Again, this is Tom. We talk ourselves into not investing because everybody says it's a terrible time to invest, not trying to add another employee and drive greater growth because it's not a good time to do it. When you look at the core business and you look at the core renewals, all the things that are happening, I'm not seeing significant return premiums to our clients at this time. To Mike, a guiding ladder, a leading edge indicator. Our business can either be seen as a trailing or a leading. In this, I think we tend to follow rather than lead market indicators.
Thanks, Tom. Next up, we have Bill Ziebell. He's going to spend the next 20, 25 minutes talking about our Employee Benefits Consulting and Brokerage operations. Bill?
Great. Thank you, Ray. Good morning, everyone. I am Bill Ziebell. I lead Gallagher Benefit Services. This is our division focused on people for our clients. Benefits, human capital or human resource consulting, as well as compensation, all things that matter with the people out there. If you really think about what's going on in the economy, I've been hearing some of the questions so far this morning, we're still seeing a lot of very low unemployment, fighting for talent. We have multigenerational employees for the first time, really. We have baby boomers still working. We have the new generations coming in, and employers everywhere are fighting for that talent and trying to keep a sustainable cost structure. Very important to balance those two out. I was just down in Austin this last week, and they're facing unemployment of 2%.
It's unbelievable how lean it is out there trying to fight for talent out there. We feel like we really are positioning ourselves to help our clients throughout the middle market succeed in that endeavor. We're looking at what we're trying to build as an organization. We want to have deep expertise. We want to have broad reach and be able to help our clients, the employers, whether they have multinational needs, whether they're solely in one location or across state lines, things of that nature. As we look for our future, we're looking to continue with this deep expertise. We try to do things to differentiate ourselves. Earlier, I heard Mike talk about CORE360. That's their value proposition, looking at a holistic approach to property and casualty placement. We're looking at things a little bit differently, but similar.
We have a terminology, we call it Gallagher Better Works. It's what unifies our value proposition. If you think about what levers employers have to attract, retain talent, it's compensation. How much should we be paying somebody? What type of incentive plans should we be paying them to align with our mission, our goals? What kind of long-term incentive can we give to retain those folks? Then you look at things like benefits, retirement plans, pensions, things of that nature. It all falls into what we're building here at Gallagher. On top of that, if you have the best programs in the world, best benefits and compensation, but nobody knows about it, then you're probably not getting the best return on your investment. We spend a lot of time on engagement, on communications solutions, things of that nature.
A lot of this is from finding good merger partners, which I'll get into in a minute, but then expanding those relationships across that platform. Speaking of organic, getting into that next, you heard of our four pillars, organic, mergers, property, productivity, and quality, and then of course, culture. On the organic front, this deep expertise comes to play all the time. Just this week, we just released our annual National Benchmarking Survey. It gets into asking employers of all different types of sizes, what they're doing in terms of their employee benefit plans, but also we ask strategic questions. What are you intending to do over the next couple of years? It is the largest survey in the industry. I'm very proud of it.
It actually helps us close business and open doors for new opportunities as well, because employers always want to know how are they doing against the mean, what do you have to do to attract talent, things of that nature. I have personally used it in front of association groups, CFOs, helping them understand where they're ranked in terms of the competition. Because our survey is such a size, the largest, we actually get specific cut sheets by industry, by vertical, so they can compare themselves to their peers, and not just in general against other employers out there. That's out right now. You can actually go to our website and download it. We give the full report to those that participate in it. It's a big deal for us. We actually use it quite a bit.
Not only do we use it for the survey itself, then we mine it for future thought leadership that we release in terms of what are the best in class doing to attract talent or to keep their costs down, and we share that with people as well. Speaking of thought leadership, another one we put out every year is called the Organizational Wellbeing and Talent Insights. Instead of the client data and the client responses, these are Gallagher practitioners that are weighing in with articles and stories about what's working for their clients to attract talent, keep costs down. We put it out every year. It's really quite a useful piece for us, gets a lot of conversation started with prospects and with clients.
Just last week, I was out at an office where we got the call that they picked up the broker record letter because we started the process by sending the thought leadership to the prospect. The prospect, in this case, was a very large private equity-owned owner of golf courses, and they were struggling because they had very low human capital costs, but they were having a lot of turnover, and it was causing problems for their golf course operators. They were looking for new ideas. How can we keep costs down and continue to attract talent? This Organizational Wellbeing and Talent Journal that we sent to them caught their eye and invited us in to talk to them. We picked it up. It was actually a very significant new win for us in that regard. The thought leadership isn't just getting our names in the press.
It actually helps us win business, helps our clients solve problems that they're facing all the time. Another one we have in terms of deep expertise, we had another big win recently. It's an automotive organization that has a lot of dealerships, things of that nature across the U.S. What's interesting there, they had a pretty decent local broker, but they didn't have the deep expertise on it. There are such things, levers that people have available to them, such as carving out the pharmacy expenses and things of that nature. They didn't have the expertise to really drive out the cost, and that's the investments that Gallagher's been making to actually be able to have the expertise to lead the contracts, find where the hidden dollars are, and actually help save significant dollars to this client.
We saved almost three-quarters of a million dollars in the first year on their pharmacy spend for this client. They're thrilled with us because of that, being able to take it to the next level. These are just a couple of examples of what we're trying to do to help our consultants go out and win against the competition. A lot of times people look at advisors on the benefits side as being very similar. Our expertise is what differentiates us out there when we're face-to-face with prospects and clients. Moving on to the merger side of things. Our merger partners join us all the time for those resources I mentioned, that deep expertise. They see the opportunity to do more for their clients and grow. Clearly, they're excited about the opportunity to cross-solve with the property casualty side.
There's just a lot of really great things that come into mind for that. By the way, we're not just looking to just expand the geography out there. You heard Tom talk about that as well. Really for us, it's about fit. How do they help us with that Gallagher Better Works value proposition? Can they get us deeper in terms of knowledge and expertise in an area? These are things that we're always looking for and people that want to help us build the business going forward. I've got one that came recently this summer, BluePeak Advisors. They're really focused on the pharmacy space as well. We have a very strong pharmacy practice today, but their specific niche, if you will, was really helping health plans procure their pharmaceutical spend for their members.
It's an amazing synergy there to exchange information with our existing practice, but go deeper in that area as well, because everybody's facing these issues of how do we control costs with regard to the pharmacy. We're getting better and better at that all the time. It's really something that really helps us win daily. Moving on to productivity and quality, it's always continuous for us. We're always looking for opportunities to get better, improve what we're doing for our clients, and if we can lower our costs, then great. We're going through the process today of going through our health and welfare businesses across the U.S. in terms of finding opportunities to move business to the Gallagher Service Center. We're in the middle of that right now. We hope to see some real fruition in future periods.
Right now, things are on track, we're excited about where this is taking us. It's very exciting as we get into a lot of different areas of our business, there's further opportunities in the future to get into this as well. We also have very strong professional standards. We do audits on those things. It really is making sure that we're protecting the client, doing peer review. We've done everything we can for them. We continue to strive to do better and better for our clients all of the time. Lastly, in terms of the culture, I want to give you a little story. As I just mentioned, on a road trip, a couple of, probably about five different offices in the last couple of weeks. I love getting out to see our offices, in some cases, prospects and clients.
You can just see the energy and excitement about everybody. I know this may seem very common, but I don't think it is. We get out there, we actually enjoy working with each other. Our people, every day, are helping each other across state lines, different offices with what's working for them to share with the other folks. See it every day in the emails. I'm sitting there in my office, people are asking if I have any solutions that I can help them with. Because where I sit in my position, I'm able to connect the dots for them and give them people to call, reach out to them themselves and get it started on it. It's fun to see people get energized and find solutions for their clients. We're truly very consultative in what we do for our clients.
It isn't one-sized fit all. It isn't about going to the markets and shopping. There's only a handful of national health plans to begin with, everybody gets access to their quotes. What do you do to differentiate yourself in our business? Ours is having that deep expertise and really being able to connect the dots for our clients. A lot of our relationships are in one of those areas, whether it's medical, life, disability, whether it's on the retirement side, whether it's on the HR compensation side, we have great opportunities to connect the dots on our clients. A lot of them don't know what we're capable of doing for them, that's our opportunity to continue to grow and solve their issues for them in terms of attracting talent and keeping their costs down. We're excited about our future.
We're really excited about where we're going in this company, I guess that's my opening comments. Open it up for some questions. Yeah.
Just kind of a basic question. That sounds like a lot of opportunity. How are you making money in this kind of market? What are the opportunities to actually generate more commissions to your bottom line? Does the low employment, how much does that help you? Just kind of a step back.
Well, it's interesting. I would also, back up your question, we can make a lot of money and we do it a lot. Most of our clients, we ask them how they want to pay us. We don't care if we invoice them or get commissions, whatever they want to do, whatever they prefer to do, but we are fully transparent, and we disclose all of our compensation. In some cases, we're going to get the client say, "Well, what's it going to charge to get the services from us?" We'll give them a quote, $200,000. "Do you want us to invoice you? You want to build it into product in the form of commissions?" Most cases, they'll say put it in the form of commissions.
We do it that way, and they pay their premium, and we get the commissions from the carriers, and that seems to work in most cases. However, we have other parts of our organization that are not insurance-related. Go back to the compensation consulting or the retirement folks. In that case, it's more about doing the invoicing and so forth. Again, fully transparent and so forth. When you look at the relationship we have with our clients, and we're sitting down talking to them, what I think what differentiates us, we're not walking in there and saying, "Can I sell you a retirement plan today? Can I sell you a compensation study? Can I sell you an engagement survey?" We start with the why. What's in it for them? What are they trying to get done? They're competing for talent, we know that.
Our thought leadership, national benchmarking survey, and others tell us year after year, these are the top three priorities of employers out there today. How am I going to attract and retain talent? That's number one. Number two is how are they going to grow their revenue? This is a sustainability issue because costs are going up, inflation's going up. How are they going to keep up with what they're going to need to attract that talent? They've got to move their top line a little bit higher, and how are they going to control their costs? All right? This may not seem like rocket science in terms of running a business, but hearing from our clients and prospects, what's important to them, we walk into the meeting with a presumption of what we think they want. We ask affirming questions. Is that important to you?
What have you been thinking about? What have you done so far? How can we help you solve this? Have you thought about this? Have you thought about that? These are the kinds of things how we start our conversation. As they understand and the light goes on about how we can help them, we put a proposal in front of them, or we get hired on the spot, and we grow our revenue that way. We expand that relationship. A phrase we use is land, expand, and retain. Let's go get the new client. Let's find a way to service them and show our credibility and build that trust and have that conversation how we expand the white space, and then make sure we service them so we never lose those clients.
When they're paying you more now versus 12 months ago or six months ago, what generally is driving that? What drives the growth outside of the model? What's been driving the growth lately? What's been good for your business?
Well, I think it's the opportunity to solve additional issues that come up.
What additional issues?
Well, let's say, for example, right now, as the current administration is backing off federal regulations, there are certain states, primarily on the coast, for example, who are filling the void with state regulations. I think maybe you just saw this morning, the California legislature just passed a law that's really challenging the definition of the gig economy, the gig employees. Lyft and Uber are the ones having the most, right away, concern about it. There are a lot of employers that have gig employees, and it's going to be quite the impact on a lot of them. Whenever you see a big lawsuit, whenever you see a law being passed, whenever you see a regulation being pushed out, that's an opportunity for us to come in and consult our clients, because they don't deal with these every single day.
We have built a team of compliance attorneys, ERISA and others, in retirement space and so forth, that when something comes up, we run to that issue. We figure out what it means to our clients as employers, whether it's by state or across the country or in any country, and we make sure we're communicating that with them. We put out technical bulletins, and we have places people go to get those answers. Whenever that happens, it's an opportunity to have a conversation. I'll go back again and say the current state today of fighting for talent and really struggling to get people on board and to keep those people on board and keep your costs from running out of control, is an opportunity to consult with every one of our clients. That's where those opportunities come from. We are very data-driven.
We don't just come in trying to sell something. We get into their demographics. We get into their data, their claims. We find out what their culture is, what they're trying to come out with on the outside, and we help them put a plan together and communicate that to their employees.
You mentioned the gig economy regulation. Would that create opportunity for you to sell more, or where do you guys fall on that?
Not certainly anyone knows the answer, especially when we're still trying to figure out what the law says. Even some of the comments that I read today from folks from the Uber and Lyft were saying they're not specifically talking about us. We'll see where that goes, right? If you say, for example, that there's a stricter definition of employees versus independent contractors, the employer will have more responsibility, which may mean consulting opportunities for us, you would think.
In reference to the white space between, I guess, P&C and benefits and cross-selling to each other, and it sounds really attractive, but what are the most common reasons you go to someone and they say, "No, thanks. We're good on the benefits side"? What are some of the challenges there that, I guess, would keep people using Gallagher for P&C insurance, but someone else for benefits?
Yeah. Well, there's a couple of reasons that get in the way. One is there actually are employers that want to keep them separate. "I don't want everything in one basket." You don't see that that often. A lot of folks want one person to go to be accountable for their risk, and that really works well when they're interested in that. Other situations might be that our contact, maybe it's the Chief HR Officer, is not the person who's handling the property casualty insurance. One of the quests we go through is how to figure out and navigate how to get to that person, how to make sure they understand the value that Gallagher is able to drive for them. We are doing better and better at these kinds of things.
You heard Mike talk earlier about opioid crisis and so forth, we're looking for those opportunities to connect the dots for our clients and prospects every single day. We are seeing some increases the last couple of years in our cross-selling. It's a never-ending journey. As we get new mergers, our denominator gets bigger. As we get new clients, the denominator gets bigger. We are growing the actual dollars as we go forward in time, too.
Anything else for Bill? All right.
All right. Thank you.
Thank you, Bill. We're running about five minutes early, so we're going to take a short break, but we'll be back online in a couple of minutes. Thanks.
As respects rate and submission activity. Obviously, in the brokerage business, those are individual accounts that we negotiate. We get our business from a vast number of retailers, Gallagher being the largest as far as our clients go, but we do business with AssuredPartners and McGriff and all kinds of association type clients that we do business with. We don't do a lot of business with Marsh & Willis for this particular building reason, but that's okay. We've never done much business with them. Looking at that business, it's predominantly around about five or six different specialties property, all kinds of different casualty, healthcare, executive lines. When you look at those specialties, most of our brokers specialize in one of those four buckets.
Casualty being much more broad because you have different viewpoints of, is it specialties in transportation, specialties in product recall, whatever it might be. Most of that business, again, is individually negotiated. We don't necessarily carry any pens or have binding authority or underwriting authority in that business. It is brokered deals where the retailer brings us the deal. It's a tough property account, as an example, and we go out to all the markets that specialize or have an expertise in that particular type of property, and we negotiate it on their behalf, bring it back to our retailer. Our retailer hopefully sells it, and then we share in the overall commission.
On our levels. We get the policies direct from the insurance carriers, review them, check them, and send them out. It's generally the transaction. I know you have an interest in rate. The particular rate environment and particular lines is varied. Obviously, catastrophic property or property with loss problems, you're seeing mid to upper single-digit increases, generally broadly across the marketplace. Some are higher, some are lower, but generally that's about what we're seeing. In the general casualty business, if you cast a wide net across the general casualty business, you're seeing mid-level single-digit increases. Again, you get into the transportation space, it's a little bit harder, a little more volatile. A lot of it is based on the size of the account, of course, and what their loss history, what the drivers are doing.
A lot more focused in the general marketplace that you've probably read about in telematics. When you get into the transportation space, if they have invested or are willing to invest into the telematics and a lot of the data, a lot of the camera use, all that kind of stuff, typically the pricing comes down. We've actually seen, and I might have mentioned this the last time we got together, we are seeing carriers today in the excess space that are willing to help their transportation partners pay for part of the telematics cost. They build it into the premium and say, okay, the premium's X, but we'll give you $250,000 of that to invest into telematics. It's been pretty interesting help because what it does for them is, of course, it gives them a lot of defense in the adjustment of a claim.
That's the kind of the rate increases that we're seeing in that particular space. Moving into the executive line space, it's varied. Public D&O is pretty tough. A tough deal. Cyber, the big cyber stuff's getting a lot of attention. We do a lot of small cyber business in executive lines. We're the sixth largest rider of small cyber in RPS, and that's where we deliver that product via our e-commerce offering, where any retailer can go in that has a contract with RPS, and they can get a quote on small cyber, actually get a quote and issue a policy within a matter of three minutes. It's a small subset of questions, gives you an indication. If you want to buy it, a few more questions gets you a bindable quotation and a policy. We do that in a matter of moments.
That's kind of our space in the e-commerce is really small subset, quick transaction. We don't touch it very often. We can transact a lot of business pumping through our e-commerce platform and portal. Continue to make significant investments in that platform. Not everybody wants to buy things digital, but a lot of people do, so we're giving them options on how they want to access RPS in transacting business. Moving into the healthcare space, again, broadly seeing rate increases in the healthcare space, especially in assisted living, anything to do with the healthcare space where there's a lot of assisted living type or nursing homes or whatever you want to call them. That market has kind of been very firm. It's not hard, but it's firm. You can still get coverage. But the pricing is increasing in that space.
That kind of gives you a broad idea. Transportation, again, on the primary side, which we do a fair amount of, we've done really well in our growth pattern in transportation. You continue to see generally, 8-10 mid-level type increases in truck. That kind of moves us into our binding side. Rate environment's a little bit different there. Binding, our binding or MGA space, give you a quick overview of that. That's the space where we actually act as an outsourced insurance company. We have tons of underwriters in about 80 offices, and they are basically making risk and pricing selection on behalf of about 30 different insurance companies that we hold underwriting authority for. Typically smaller transactions, $5,000 and under, maybe $10,000 and under, depending on the class of business.
Again, we do everything from we receive the submissions from the retail community, we rate it, we quote it, we bind it, we issue the policies, we collect the money, and we do everything, but we don't handle the claims, and we don't place the re-insurance. That's our MGA space. We love that space. A little less competitive, of course, because less profile accounts. It is interesting when we do our rate analysis on what we're seeing in that particular space, not a whole lot of rate going on there. Generally seeing very low single digit rate increases. That small market usually trails the larger accounts by generally sometimes about a year. We don't think that we're going to continue to see a broad rate escalation in the binding space for probably another couple quarters.
We believe that we will see it, but we're not seeing it as of yet. Lloyd's, as you know, been pushing it. They're one of the larger binding carriers out there, and they are continuing to push rates, so they're trying to get it. They're focused so much more on their expense ratios as much as they are trying to get rate. The rate's not the problem. Their problem has been the expense ratio running so high. That's generally, we do a lot of new accounts, a lot of transactions in that business. We're trying to get better in our productivity and quality. We have a project that we call P1000, which is moving to P2500, which is basically getting all those policies into a format where it's policies till canceled.
We don't have to issue them anymore except one time, and then we'll just continue to bill the client every year annual premiums, because they don't generally change. Small accounts. We're moving that up, and we're either doing policies till cancel or three-year policies. That is helping significantly our productivity and quality. That's kind of our binding space. Again, usual, lots of new businesses. If you started a new bar, tavern, or restaurant, you have no history, the standard markets don't want to write it because there's no history to it. We'll write it. We'll usually keep it 3 or 4 years. They get history. They get a loss history. They get experience, and it generally floats to the standard market. That's what we do. We provide an outlet for insurance for those type of new startups and new types of businesses.
Transportation, we do a lot of transportation in this space. Talking about the marketplace has significantly changed in the truck business. There are generally about 5 MGA type transportation companies that exist in our space. We have all five, so we're very proud of that because we've put a particular focus on knowing what we're doing in the truck space. Truck space, five or six years ago, I probably wouldn't talk as much about it because it was a tough space. It wasn't growing. Wasn't as many trucks on the road. Today, we get an awful lot of submissions because we have a specialty across the country in being able to do transportation. Talking about the productivity and quality in that space, which is really, really cool. You're not going to hear a lot of people out in the space talking about things that they're doing in investments.
We made a strategic investment inside the organization to embark on a robotics project within our transportation space. Pretty cool stuff. We went out, went to our five carriers, said, "Hey, would you be willing to give access to all of your web-based rating modules to our robot?" The robot goes out, and that robot rates all five carriers. Instead of us having to have an employee sit there and rate five different policies or five different carriers, the robot goes out, takes the information, pings the web-based rating system for these different insurance companies, and within the same amount of time that it would take to get one rating or quote, we get five. Our retailers are happy because we're going to five carriers. They've done their job. We get much higher efficiency, and more bindable opportunities by investing. We've tested it. It works.
Our biggest transportation office is in Charlotte, and now we're rolling that out across the entire company. We're able to take projects, incubate them, and then roll them across the entire organization so that everybody benefits. It's been a really cool project, and we'll take that same process now that we've perfected it to other parts of our company. That's generally a broad view of that space. Our programs space. Programs have been very good. It's one of the nicest return businesses that we have. We specialize. We have about 36 different programs in our space, in the RPS space, and it's really about making sure that we're cross-selling every program we have to every retailer that we do business with. Our distribution in all of our space we do business, we touch about 25,000 different retail clients every year.
Our ability to get product to market, get a program to market, develop a new program through data. If you think about the data that we have, we place about $3.6 billion into the marketplace in RPS. Our ability to now, through data initiatives, go in and bind that data for like type accounts and then build programs around it, give us a very strong and fair advantage in our ability to create opportunities for us and for our retailers to have specific programs. We're very excited about all those initiatives, the things that we're invested in, the things that we're doing. It's not just the accounts that we write, but it's also the submissions that we receive that we don't write. It gives us the ability to accumulate that information broadly in particular classes.
We're very excited about the next generation of our data strategy. Moving into non-standard. Non-standard auto broadly goes, of course, by the name Pronto. We do non-standard auto. Currently, largest state is Texas, then California, then Florida, and then now we've moved recently this year into Illinois. Pronto, our non-standard auto, is not growing as fast as our other three divisions. That's mostly because in Texas, we took a decent size rate increase at the beginning of the year. We believe that we maybe got out a little bit ahead of some of our competitors, but our competitors are going to be required to catch up to us. It's not growing as fast. Still a healthy business. It was a work into our MGU space. MGU is a little bit different than MGA because we do handle the claims for Pronto in Texas.
We believe in that space. We believe in the leadership team. We believe that there's a lot of opportunity in mergers in that space because when you look at it broadly now, in that we specialize in the Hispanic community, that's about 98% of what we do, and there's a lot of merger opportunity in that space because of the growing demographic that you have. I talked a little bit about productivity and quality. I want to talk a little bit more about it. Our Centers of Excellence are second to none. We're heavy users of our Centers of Excellence in both India and in Las Vegas.
It was a game changer for us because we were able to centralize a lot of the backroom functions that we were doing previously, different ways across our businesses, and we were able to consolidate it into a process where we can get our policies out in under 24 hours. We know exactly what our quality is because they all get checked, and we know exactly what it costs us to get a policy out. Before, it would cost us $30 to issue a policy here, $15 over here. Broadly now, we've been able to get it where we're issuing hundreds of thousands of policies, we know exactly what our costs are. Every day, our Centers of Excellence do Kaizen projects to get it better and better and better and more efficient. I went this past spring. It's a work of genius over there.
I can't tell you how cool it is to go there and see the work that they do, how excited they are to come in and help us get better. That's exciting. We talked about the robotics. Every day, give my friend in the back row a lot of credit on really challenging us to get better at what we do and more productive every single day. There's not a day go by that we don't talk about it. How do we get better? How do we get more efficient? How do we get higher quality? How do we deliver things at a better cost? It's exciting for us. It's one of the things that we focus on. Every division has their name for it. Ours is growth enabling operations, and it's an operations group that, again, focuses on all of our offices.
How do we get the work to the right level at the best cost, the best quality? It's a focus that we work on every day. We talked a little bit about mergers when we talked about our non-standard auto. We're in the merger business, of course, just like every other division of the organization. We've done 3 this year. We've got a substantial pipeline of opportunities that will come up between now and the end of the year, and certainly going into 2020. We are known in many of our spaces as the MGA merger of choice. People like us. They like the way that we've grown our business. We have the largest footprint and the most resources. Again, all the things that I talk to you very broadly about at a high level, we call it the candy store.
You open up the candy store, come in, and look at all the things that you get when you merge with us. Yes, you are going to get a check. There is no question, of course, money's money. Look at all the things that we're going to bring to you that are going to help you and your employees run your business better, more efficiently, more markets, more processes. I haven't met a business owner yet that loves to do accounting. We got the best accounting staff in the country. If we could take those work off you and actually focus on what you're doing, which is selling and underwriting insurance, how cool is that? Because nobody wants to do all the other stuff. I haven't met anybody yet who loves doing that. We continue to see mergers.
I spend probably 20% of my time, 25%. We do have a person who's responsible for corporate development in RPS. He came out of the BMO side. He's really, really good. He's really, really smart, and he makes a lot of good connections, and he's been a big help for us over the last 12 months. He came to us through a merger, through Pronto. That's where I can answer any questions on the merger side. It's been great. Obviously, valuations, pricing, multiples have, in our space, have been a little bit better than maybe some of the other parts of Gallagher. We maintain good discipline in our merger selection and our merger pricing. You sell more than just price, of course. We're excited about that. I think last thing is really culture.
I'm excited to tell you that RPS was selected this past 30 days as one of the best places to work in the insurance industry by IBA Magazine. In the category of over 500 employees, RPS had over 150 employees answer the survey. This is not something we asked them to do, which is very exciting. I think our score was 90-some odd %. That's exciting for us. We love that people want to come to work for us. We're a good employer. We're in a good spot. When I leave you all, just to give you an idea of the type of cultural activities that we do, we're having a local picnic for our Chicagoland people. We have about 107 people, and Joel cooks. I will cook for 107 people. Pray it doesn't rain because I'm going to get really wet.
That's the kind of things that we do. Lastly, talking about organic, we continue to see submission activities through the roof, as you would expect. That's taken a lot of time. Every deal is harder to do, everybody's working harder. That's the way it works in this particular environment. Our rollout, we're rolling out. We had 71 interns in RPS this summer. We go through a process. We turn these interns into producers or underwriters. Our binding side, we're probably rolling out about 20 a year out of that program into underwriting. We're just, 1/1, we'll be rolling out 12 additional brokers in the wholesale brokerage space. That is what I call our secret sauce. That's what I call our farm club.
Being able to not have to, as I've told people, if we execute properly on our internship, GCAP into producers, I'd never have to go out and hire another outside person ever again, because the pipeline would be just massive. We think we're hitting every area. We're enjoying the success, we're just going to try to keep it up. There'll be an AM Best report on the surplus lines business that will be released, actually probably got released yesterday, talking about the E&S space, I think you'll see that it's a good spot to be. Happy to take questions.
Yeah. When Pat spoke earlier, he mentioned seeing some submissions going from the standard market to the E&S market, that's been picking up. Can you just give us a little bit more color? What are you seeing? Do you expect those trends to continue in terms of just the flow that Pat's been seeing from standard going to the E&S side of things?
Let's talk about our space generally. Of course, there are clearly standard market. This building, RPS is never going to transact a deal on this building. It's a great building, great construction, it has all the fire protection. We're never going to see that. You move up to the fringe, and that's where the standard markets come in and out. There's that probably 10% of the marketplace that a standard market will come in because they're looking for growth or looking for whatever they like that because they're going to do it for their retailer, for their independent agent or whoever. There's that space, and that's the space that moves in, and it moves out of the E&S. When the market changes and appetites change, that is the space that they exit first.
It's either that space, that fringe of the market, or it's loss related type accounts that maybe they want to get out of. Something develops. You guys obviously read the news. A lot of the things that are going on in the abuse, in the social aspect of insurance, as they call it. They used to call it sexual molestation coverage for a long time. Nobody calls it that anymore. They just call it social insurance. That, because of what's going on in New York and some of the other states, going back, removing the statute of limitations, that's created quite a stir in the insurance community. Standard markets that were providing that type of coverage within a program or within a particular line, like schools or higher education, all the way down the line, that's brought a big flow.
People will exit that, and then, of course, it naturally comes back into the E&S space. I think it continues. I don't see any change in the market as the market continues to develop. We're not through with this yet. People aren't finished. Lloyd's, getting rid of the bottom 10% of their business every single year will cause natural flow back in because some of the MGAs, and I'll knock on wood on our space, we were able to successfully renew our Lloyd's contracts. A lot of our competitors weren't that lucky. They had poor experience, and they got part of that decile 10.
I got a couple of unrelated questions. The first one has to do with Lloyd's.
Yep.
I looked over the last decade, there's been a massive increase in producer compensation. Been mainly the change over the last couple of decades. In your view, do you think that that producer compensation can get reduced under the new era, or is it not going to happen? Because that seems to be it's all the expenses, it's producers, right?
Yeah. Lloyd's is obviously, John Neal's very focused on that number, of getting that number down. Of course, there are a fair number. When you get to the Lloyd's transaction, there's more mouths to feed, right? You're going to have to take a little of both. We were fortunate in that we didn't get piggy along the way. It helped us in our renewals because we weren't ones that were shoving it down the syndicate's throat saying, "You will pay me 28%." We're good underwriters, we're happy to share in the success. We make a lot on our contingents and supplementals. It's a big focus on us. We have a big underwriting audit team that goes in, makes sure that we're making good underwriting decisions for our partners. Our partners make money, and we share in the success.
I'm happy to take that risk because we're really good at what we do. Do we get dinged every once in a while? Of course. We can't control the weather. We can't control certain events. We believe that we're good enough that we can actually take that opportunity to make more on the back end than the front end. That, when they pay profit share, that doesn't go into their expense calculation. That goes into the loss ratio. I'm more than happy to do that. I think that some of the people that did get, as I use the word, piggy, it did have an influence on their ability. People have pretty good memories on that. I think that if you run a good business, you have good loss ratios, you will continue to have your relationships, and we've been successful.
Others in our community, in our competitors, many of our competitors have not been that lucky.
Unrelated, I would like to have a couple of comments if you could on the competitive environment for the non-standard business. Obviously, you say you've raised rates.
Are people keeping rates down because they're being competitive or because they just haven't seen, in your view, that uptick in claims yet?
We keep a really close watch on our loss ratios in the non-standard auto business. We watch it really closely. I think what we've seen a little bit in that space, we operate in non-standard auto in a, if, I know this is a funny word, preferred non-standard. Our typical demographic is married, $35,000-$65,000 household income, own two cars by physical damage, blah, blah. Again, as I talked about with the lease, that space that kind of gets up and down like this, that's the space we operate in. You'll see the Progressive, you'll see some of those. The State Farm, they'll move in and out of that little corridor right there. Our ability, candidly, is to go a little downstream. There is a big market for that.
If it doesn't fit one of our MGA products, which we have in Pronto, we can offer third-party products. We can offer now, which they couldn't do before, we've introduced low-value dwelling, we've introduced artisan contractors programs. There's a lot of things out there that now we can balance the distribution that we have out there with products other than just non-standard. We'll see that. Again, it's a space where, again, there's a little of elasticity in people moving in, people moving out. Right now, we've seen some people move in because their rates are cheaper. It is a commodity purchase, believe me. It's a price incentive.
One last one.
Yeah, sure.
Thanks. Can you talk about, if and where insurance-linked securities or alternative capital has affected any of your businesses?
Yeah. If you'd asked me that two years ago, I'd have probably said, "Oh, there's a big inflow into the ILS space." People taking blocks of business, modeling it, offering it to ILS capacity, offering a front. There was some, I think what you've seen, and probably what you've read about on the ILS space, there were some issues, right? CatCo had some issues. Some of the other people had issues. What I think the ILS is now seeing is the insurance business is not quite as simple as they maybe thought it was. They've got locked up capital. No private equity or hedge fund likes to have their capital locked, right? Some of the fronts, some of the reinsurance companies, have now held the capital because the claims haven't. Takes a long time to settle claims.
In states like Florida, where you've had assignment of benefits, all those kind of things, you might not be done for years and years and years. People are holding onto the capital, and they're like, "Wait a minute, I want my money back." It's like, "No, you're not going to get your money back for quite some time." Useless, unused capital is not the story of the day. We've seen a, I'm sure you've read, a major pullback in that. People are much more concerned now about how long is the front going to hold my money. Some of these fronts, when you get to the State Nationals, and some of the other folks out there, they're holding onto capital for quite some time. It hasn't had a significant impact on RPS.
We've seen, of course, much more use of it in the reinsurance community than on the direct basis. There are a few competitors who have dabbled in it and gotten in. Some people have gotten out already. I'm sure there was a lot of nervous in the service about two weeks ago with the storm looking squarely at Florida. It didn't happen, fortunately. It's here to stay, but I don't think it's quite as headliney as it was. Thank you for your time. Again, appreciate you all coming. Hope you all have a safe travel home.
Thanks, Joel. All right. Next up, we have Scott Hudson. He's going to be talking about our claims management business, which is primarily our risk management segment and our financials. Scott, the next 20, 25 minutes are yours.
Thanks, Ray. Okay. Am I on, Patrick?
You are.
I think it sounds like it's there. As I do each time, I'll take a couple of minutes to dimension the business. I'll talk about specifically what we're doing to drive organic growth. I'll talk about M&A. We actually do have a little bit of news to report there. We continue to pick up the pace a little bit. Productivity and quality. Finishing off with culture. I'll just recap everything. As a reminder, the Gallagher Bassett piece of the Gallagher enterprise, last year we ended at right around $800 million. That puts us at 15%+ of the overall enterprise. Another way of looking at it, as I like to describe, is if you look at the claim payments that we make are well in excess of $10 billion, $11 billion, maybe I think they're even getting close to probably $12 billion now.
We pay well over 1 million claims a year. That puts us into the range of being like a $15 billion insurance carrier. I always like to say we are a big deal. I think in the past, people would've thought of us as a little more of a kind of a cottage industry. When it comes to claim payments, we're very prominent in all the markets that we operate. We serve four specific types of clients. The traditional large commercial insurer that unbundles their claim handling from a carrier. There's the public sector organizations. They're a little bit different. Some of the U.S. are municipalities, state governments. If you go down to Australia, the state governments are actually functioning as insurance carriers. We serve as agents for them. We work for local municipalities over in the U.K.
We're continuing to grow our carrier business where we're actually taking over a portion of their claim handling in different segments of their claim operations. There's working with organizations like Joel's, with MGAs, MGUs, serving as those claims operations for those organizations. We are predominantly a claims management company. We're becoming more than that as we move further into the kind of pre-loss prevention activities. Our core claim activity is in workers' comp. We're also working pretty hard to extend beyond that. We're seeing a pretty significant uptick in general liability, commercial auto. We are starting to move a little bit more into the world of property. You'll hear more and more that we're getting into some specialty lines like med mal, professional liability, product liability, things along those lines.
The way we add value is, in essence, we can customize what we do to the specific needs of a given carrier or a given large commercial entity. It may be around how they want to face off with their clients who had an incident, or their customers who had an incident in their organization. It may be with respect to how they want to handle injuries for their employees. The competitors, if you just look at who we compete with, as I always describe, it's kind of the usual suspects. I would say really no new entrants in the U.S. Sedgwick, Broadspire underneath Crawford. Some are connected to carriers like Helmsman and ESIS. CorVel is a competitor here in the U.S.
We're starting to see a little bit more activity with Sedgwick's recent acquisition of Cunningham Lindsey, where they're present, but primarily from a property standpoint in the U.K. and down in Australia. In the U.K., there's law firms that are in the business. There's smallish TPAs. Broadspire is over there a little bit, but it's not quite as well developed of a marketplace as it is here in the U.S. Same thing is true down in New Zealand, where we operate. In Australia, we actually compete directly with a lot of the insurance carriers. They function as TPAs, probably more along the lines of what Chubb would do here or what Liberty would do here. Then there's a couple of other names. EML is a large competitor down there. We're seeing a little bit of the Sedgwick name popping up.
The way we go to market, it's a little less about scale and large volume. It's about delivering the best claim result. We're doing a lot of things you've heard me talk about in the past, the investments we're making in the business to make sure that we're giving you the best result. The best result on a claim isn't necessarily the lowest cost. It could be the quickest back to work, it could be the service dimension to it. There's a lot of ways to define that superior outcome. That's what we're all about. I mentioned where we operate. We do have folks in Australia. We do have folks down in New Zealand, a significant group here in the U.S. We're in the U.K. We actually handle claims in other countries through alliances that we have.
I would say still probably about 75%+ of our business is here in the U.S., but we continue to be excited about what's happening outside of the U.S. as well. We've got roughly 6,000 employees. The majority of those are frontline claims professionals. There's obviously the support staff that make it all go. If you look at just a couple of the financial measures, organic, over the past five years, we've been in kind of the mid-single-digit organic growth range. Q1 this year was at 4.1. Q2, as you recall, was at 3.5. As I'd mentioned previously, we're anticipating in the latter half of the year that that's going to go back up to mid-to-higher single digits. That is rebounding. That'll probably put us in and around 5% organic for the overall year. Margin has stayed relatively consistent earlier in the year.
First quarter, it was 17.5 in the second quarter. We would anticipate that that stays similar through the second half, putting us in the kind of target area of 17%+. Let me shift gears to what we do to drive organic growth. I'll talk about four things here. First, it's all about focusing on kind of where we see the tide rising, the fastest growing segments. I talk a lot about our business with the insurance carriers. I see that continuing to be where there's a lot of upside potential. Our business is probably well in excess of $100+ million. That's something, for the most part, we did from a standing start, probably three, four, five, six years ago. That continues to grow quite well.
It's a little bit of a different dynamic there too, because once we get in with what we would probably describe one of our platform carriers, then we're not as involved in the actual selling of the. As they bring on additional insureds, we're just seeing the claim activity grow. We've got a number of very large, well-known carriers who are kind of our platform carriers. There's nothing that would say that that's not going to continue to expand well into the future. The alternative markets, our captive business, we've got a very strong business with group captives. That continues to see higher single-digit growth in that part of our business. In some cases, it's closer to double digits. That's more prominent here in the U.S., but that's been a strong area for us with a couple of our clients.
One of them being Artex, which is part of GGB here in the U.S. Second area for growth, product expansion. I mentioned when I was just kind of dimensioning the business, historically, we've been a work comp TPA. We continue to broaden our service lines in terms of the type of claims that we handle. Essentially, that does two things for us. One is that gives us a chance to get a greater share of the wallet from the clients that we're working with. They're not just in need of work comp services. We can get into the product liability area. We're sitting in a large healthcare institution handling their work comp claims. Guess what? They have medical malpractice. It does give us an opportunity to extend our reach within the specific organizations that we're working with.
It also just opens up new opportunities that we wouldn't have necessarily had in the past. I think you're going to continue to see, we've got some efforts underway where we're going to start going to market more specifically in given verticals, things like trucking, construction, and we're building a well-rounded set of services. When we think about our pre-loss and environmental services that we provide, as well as the claim handling and so forth, I think you'll see where we really start ramping that up in a pretty meaningful way. There continues to be opportunities to expand geographically. I've talked about this in the past in terms of we're only going to go in where we see that there's enough volume to justify building out a claim operation.
If you look at what we did in New Zealand, that is something that has taken place probably over the last four to five years. We haven't found the perfect spot yet, so we haven't planted a flag anywhere else. I would anticipate over time that that'll happen. The last thing in terms of, and I've mentioned this already today, in terms of driving organic growth, the way we're positioning ourselves, our brand, who we are in the market is delivering the best claim results. It may sound, gee, I would think everybody's saying that, but I think in some cases, people are going to market as the low cost provider. We definitely have competitors who are going in, and it's all about the lowest possible price for a claim. That's not the space we want to play in.
We're making investments into the business to make sure that the outcome that we're providing on whatever type of claim and for whatever type of client is the absolute best result for their business. In terms of the organic growth, I shared with you kind of where it has been historically, and what we're anticipating in the second half of the year. I would say that we're continuing to be pretty bullish on the second half, and as we look into next year and beyond, I think the mid to higher single digit range where we've been in the past, we're going to recapture that and that looks to be where, at a minimum, we'll be. Retention rates, one other thing I'll mention, that's an important part of the organic growth as well, our ability to retain the client base.
We've actually seen a little bit of an uptick, I think, kind of across our overall business. That's probably a credit to the quality that Jay Sinha and our claims team are delivering. We're seeing retention rates probably strengthen a little bit here in the U.S. book of business beyond what it has been over the last couple of years. Generally a positive story around the organic side. Moving to M&A. As I said, the way we think about inside Gallagher Bassett, M&A is we're focused on doing a couple of things. If we can get into another geography and it makes sense, we'll do that. I've mentioned we haven't done that more recently, since we did it in New Zealand a few years ago.
More importantly, we want to build capabilities, whether it's a new product line, I've mentioned environmental services, whether it's medical malpractice, in terms of the type of claim handling, product liability. That's the sort of thing that we've been doing or thinking about with the folks who are out kind of looking for opportunities for us to buy companies. Recently, we just announced the acquisition of a company by the name of Adjusting Associates over in the U.K. That gives us strength and capabilities to serve the Lloyd's marketplace. There's specific requirements in terms of being able to work within that environment. These guys give us the ability to do that. We acquired a company by the name of Fullerton Health Services down in Sydney, Australia. This gets us into the accident and health space. It's rounding out our service offerings down in Australia.
Just at the tail end of August, on August 29th, we announced the acquisition of EE&G, which is another environmental services company similar to the company we acquired a year ago in WCD. What this group does is it allows us to expand into the Southeast U.S. Very thoughtful and kind of strategic in terms of the way we're making acquisitions. Productivity and quality, as I said, our target is to be in the 17+% margin range. I think we continue to believe that is probably industry-leading. Every single day, our teams are looking for opportunities to drive improved productivity. Scale and efficiency comes in our business. We're doing a number of things to centralize certain aspects of what we do. We are using the Gallagher Service Centers, specifically in India, just like the other divisions.
We actually have put a number of people in our Las Vegas service centers. We've centralized off of our resolution manager adjusters desks, a number of call-related activities, and put them into Las Vegas. There are those activities underway. I've got our CFO here at the back, Jim Bond. Jim and I are every couple of weeks, we get together with our claims operations team, and we're managing capacity in a very, very tight way. I think that continues to allow us to keep productivity improving on a day-to-day basis. Global integration is important in the sense that back to scale, it's not just within a given geography. When you think about call center type activities, some of the things we're doing in India, that applies across our entire business.
To the extent that we can share what we do, whether it's technology solutions across each of our geographies, that helps us there as well. We are pushing very hard on the technology front. I've talked to you about a number of the things that we've put out there. It was announced probably in the last month that our mobile capabilities, our mobile apps that we're using primarily in the work comp space, were a leading innovation as announced by Business Insurance. Last year with the same organization with Business Insurance, it was our smart benchmarking capability. I was just down in Australia a couple of weeks ago, and we were noted as having one of the top InsurTech programs, with our work that we're doing with the Tasmanian government, and the tools that we're putting in place.
That's a recent client acquisition of ours, and we're in the health and wellness space working with them. One of the other things that's quite interesting is our Treatment Quality Index, in terms of the things that we're doing to try to help our resolution managers, our adjusters, keep better track of kind of the treatment patterns as it relates to work comp claims. Lots of interesting things going around that we've got going on as it relates to innovation, kind of in the technology space. The last two things I've mentioned in the past, that we are now organized around our key market segments, which has allowed us to create some efficiencies. We do have a specific captive business. We have a carrier business. We have a risk management or kind of a large commercial business.
You're going to start seeing these industry verticals coming into play. All of that allows around those particular groups, us to be a little bit more efficient. The last thing I'll say is around security and data privacy. That's a big deal for us. There isn't a RFP that we get from a client that they don't want to speak specifically about our ability to keep a tight lid and control over the data that we take responsibility for as it relates to their specific businesses. On the culture front, I will just give you one interesting little highlight. It's another award that we've just been announced at PR News. We've got an employee communication platform that we have put in place over the last couple of years. It's a challenge to keep people connected in terms of what's going on.
We've just gotten a recognition for our online communication tools that we've put in place to keep our frontline claims adjusters, our account management personnel in place, and you'll see that across the airwaves here over the next couple of weeks in terms of some of the good things that we're doing culturally to keep our people connected in terms of the overall business. In summary, how do we differentiate ourselves? I've said this, it's kind of throughout the conversation. Number one, it's all about superior outcomes. It's our ability to customize our solutions to clients' specific needs. We've got a unique brand, I think, in the marketplace around we have a heart in terms of the way we handle claims. We care about people. We're compassionate. Our strength of our relationship with Gallagher makes a difference in our business.
The other thing is we can sit there and tell somebody we can handle a whole variety of types of claims. It's not just one specific type, and we can do it around the world. Questions, curiosities, anything. Mark.
I think you've mentioned your retention is up.
It's up a little bit.
I don't know whether you've shared any specific numbers or what's the magnitude of that? What's driving it?
What's driving it is, it's probably our quality and overall service. We've put a lot of emphasis on that over the last couple of years. It may sound simple, but in some respects, that does make a difference. I mean, it's still in our business, a lot of times people, they only leave. For somebody to move a program from us is not a trivial exercise. It is a many, many month major undertaking to move it. If you can keep the quality up, you're going to keep retention up. We have seen probably a point or two, in terms of just keeping the revenue in-house. It's been helpful. The tenor of the client community inside Gallagher Bassett, there's just far fewer issues that we're hearing about day in and day out.
Any read-through on the workers' comp claims?
Just a read on how many, what's the frequency of them?
Yeah.
Our claim counts, we're probably seeing, I think overall, I'm looking back at Jim, we're probably in the 1.5%-2% growth. The number I'd like to give you is as it relates to existing clients, because I want to separate our growth.
Yeah. I was kind of thinking.
Yeah. The existing client growth is probably overall in the neighborhood of about 1.5%-2%. It continues to hover around that. The work comp line versus the liability line is probably just, is a little below that. It's probably pulling it down a little more than it's helping it out. It's probably in the 1%-1.5% range.
It's being fluid.
It hasn't probably changed now, I would say for about a year. We had seen a year and a half or two years ago where it kind of spiked up maybe into the 2%-3% range. More recently, it's kind of leveled off there. There's nothing significant going on that we can tell.
Just on, you said 5% organic growth for the full year, and I think the expectation was that growth would improve kind of sequentially from the Q2.
Yeah.
Would you expect the Q3 and the Q4 to both kind of come in in the
They'll be above 5%. Yeah.
To a layperson like me, it seems like managing a med mal claim is a lot different than managing a workers' comp claim, and et cetera. Can you just give me, you talked a little bit about the playbook getting into a new line-
Yes
a product line, buying in may be easier than building. Can you just give me the playbook, just a high level playbook on what you do to grow a new product line and support it from a management level and-
A couple things. Interestingly, every line probably has simple claims and complex claims. Even in workers' compensation, there are some that aren't very simple. Even compared to med mal, and you go into med mal, and some of them actually aren't that complicated. That said, first it starts with going out and acquiring the expertise. We've gotten into cyber recently as well. We've got to go find people that can lead that product line, and that have the adjusting experience within that particular area. That's kind of first and foremost. What's happening is we're actually probably in some of those lines, we actually now have lawyers that are on staff, as opposed to claims processors, maybe that we might have had typically in some of the areas we worked previously. It's a different complement of people.
It's leaders who have experience in that area. Of course, there's going to be some technology requirements. A claims system doesn't handle all lines of claims in the same way. There's specific requirements. Hopefully, our liability claims handling systems are supportive, and able to support the new lines we're getting in, but there's technology requirements. It really is. We have to believe in a big way that we think this is going to make a difference because the underlying investment to build the platform, to build the infrastructure is not insignificant. Back to the point of one of the questions that comes up is around margins. We're making an investment to build these businesses in anticipation of these fueling growth. There are legitimate investments being made in technology, people, probably a little bit ahead of the curve.
The other thing is organizationally, we have to do some things. I've got to go sell to these organizations. I've got to sell new capabilities. Even our sales professionals, some of our account management professionals now have to be able to sell a more broadened or well-rounded out set of services. If they were accustomed to selling typically work comp, okay, how do you sell medical mal? Now, in some cases, you need to bring in new sales talent to do that, but some of it's training up the people that you have. The last thing is the channel that you get to, who you buy this stuff from inside these organizations are not the same people. If we're going into an insurance carrier, there actually may be different product heads. The claims organization may be divided in different parts.
If we go into McDonald's, the guy that's managing the work comp line could be the risk manager, could be the head of HR, whereas the liability or product liability could be the legal department. It is building out new capabilities kind of across every aspect of our business, from technology to people, to skills and capabilities, to training, to the sales professionals to get out there. That's what's happening. I don't know if that gives you a little bit of a sense. I would say that any line that we do have, there are complex trucking claims that we have today. We work for bus companies 30 kids in a bus, an accident like that is one heck of a complicated claim. It's not just that the new lines that we're getting in by definition are always more complex.
We're actually there in a pretty big way today.
All right. Thanks, Scott.
Okay. Thank you.
All right. Next up we have Doug Howell. He's going to spend, I don't know, the next 30 minutes or so talking about some financials, probably CFO commentary and clean energy. Doug?
All right. Thanks everybody. Thanks for coming and I appreciate you coming in and visiting with us on our quarterly calls, our meetings. As you see with most of the businesses that you've heard from this morning, much the same as what you've heard about in our earnings call in July and what our investor day was in June and what we talked about in the earnings in April and the investor day in March. For me as the CFO, that's actually quite comforting, is that there's lots of good change initiatives going on inside of the organization, and it's just part of our DNA. I hope you got the comfort that we're continuing to push forward on the business and making good headway to be competitive and excel in this market. I think it's a great environment right now for brokers.
I think we're in terrific shape when it comes to our prospects going forward. I think the business unit leaders are engaged, embedded in the business. It's much of the same. This is an exciting time of year for me because after today, we immediately plunge in next week to our dominant priority meetings for early budget discussions and early initiative analysis. This is when the summer's over and it's time to get back on it and start thinking about 2020. We first got to wrap up 2019, right? We got to finish strong this quarter, finish strong in the fourth quarter, and I just want to provide a couple comments on that. I want to make sure that I clarify, because I know there's some questions always about organic and on margins. You heard Scott convey it very well.
His second half will be better than his first half, and he's going to bring it in somewhere for the full year in the 5% to mid 5% to 6% range. That's really where he is for the full year. Margins will be 17% to 17.5% in his business. When you look at the brokerage business, I just want to make sure we clarify. We see ourselves in the 5% range for the second half of the year. Probably will bring the full year somewhere in the 5s too. Now the granularity on that, whether the full year comes in at 5.3 or it comes in at 5.7, we're kind of getting down to that type of range. Again, it's a sales organization. We've got to make sure that we're out there competitive in the field.
Like Pat said, this still is a business where the number of boots on the ground really wins. That's what we're all about right now. Other big initiatives that we talked about at the end of the second quarter conference call is that we announced that we had done a small right-sizing of some of our workforce. We've taken a charge. You'll see in the CFO commentary that we've got the second piece of that as we've talked about coming in. That's exciting for us because it's really an initiative to become more efficient in what we refer to as our support layers: finance, marketing, Human Resources, legal, claim advocacy, IT, Investor Relations so on and so forth. The support layer that we provide.
Just to give you the magnitude of this is we spend a lot of money in this layer, and it might be as many as 4,000 people. As what we've done now, as we've grown into kind of a global franchise, but also we can share work around the world so much easier today than ever before. That allows us to move towards a centralization effort and a continued use of our offshore service centers in the back office or support layers. That's the initiative that we talked about at the end of the second quarter. You'll see that there'll be a charge here in the third quarter, $0.04 to $0.06, something like that, is what was put in the CFO commentary. I'm more excited about what it really means in this area.
I see economies of scale in that layer similar to what we saw for economies of scale when we first went in 2005 to centralize and standardize our middle office layer. Remember, as a sales organization, call it 6,000 people that are selling, about 5,000 people in India, about 4,000 people in the back office, and that leaves you about 16,000, if my math is right here this morning, or 15,000 in the middle office layer. The middle office layer is something we've been working on for 12 to 15 years at this point. The back office layer, we've always been trying to get more efficient, I think that we have the scale now where we can actually have substantial improvements in the efficiency in those layers.
I think that the technologies and the processes and the capabilities to centralize that in three or four locations around the world provides a great opportunity. I'm excited about that. I think that that will help us stem inflation and wages. That will help us hire more producers. We'll redeploy those savings that we get from the back office in the front office, also recognize the employees that are still with us. Clean energy, I want to talk about that for a minute. Also just as an opportunity, we've got with us today Chris Ellis, he's the CFO of our Australian operations. Chris happens to be in town. He's at the back of the room. If we want to talk about, do a little vignette.
I told him when he walked in 10 minutes ago, you might have to talk about what's going on down there. I think it's a pretty good success story, I don't think we should miss the opportunity to either chat with Chris or indirectly with Chris through me this morning on what we're seeing down there. Cash, we'll talk about that. I can open it up for questions real quickly on that point, or I can plunge into a couple things on clean energy and go on. Maybe for the core operations, let's work on that for a second. Elyse?
Hi. First question. Brokerage, coming back to what you just said, 5% for the second half of the year?
In the 5% somewhere for the second half of the year.
In the 5%?
Yeah.
Helpful. On the second quarter call, you guys had mentioned that the third quarter of last year served as a tougher comp, so maybe a little weaker Q3, a little stronger Q4. Do you still see it like that?
Probably. When we talk about that relative, it's not going to shock me if we wake up to 4.9% for the third quarter and 5.6% for the fourth, something like that. You see what I'm saying? We're not talking about a 1% third quarter and a 10% fourth quarter. We will be someplace in the five plus for the full or for the second half of the year.
Okay. Helpful. In terms of, I don't know if you want to come back to this later, but I noticed you guys raised the foreign currency impact of revenue, but it seems like the EPS impact was not changed.
Yeah, the FX is more of a revenue discussion for us because when you get the amortization that's coming in, it doesn't really impact your EBITDA as much as you would think, or excuse me, your EPS as much as you would think.
Okay. That's helpful. I noticed in terms of the multiple for deals, that went from 8-8.5 to 8-9. Obviously still the range, but the upper end went up. Is that a reflection of deals that you guys saw this quarter, or why did you raise the upper end of that?
All right, the question is, first of all, whether it's 8.5 or 9, 8 or 9, we're in that range. Still reflects the nice arbitrage that we have to our trading multiple. Obviously, our multiple's up, the industry is following that up in terms of the price of the tuck-in acquisitions. We do have a couple of them in there that are in the, we'll say $40 million or $50 million purchase price range. That probably drives that up just a smidge that would cause that to round up. There's nothing systemic in there. We still see the opportunity to tuck in nice acquisitions in that sub 9 range on that.
One thing I do want to make sure we mention at this point too. Mark, you had a question about it, because I want to go back to margin because I think there is some modeling items that I want to talk a little bit on margin too.
The question was you compared the effort here to your let's see, middle office layer initiative that's been in place for a while. Is there a way to say how much opportunity there is in the back office versus the middle office?
Yeah, sure. Let me just say that. Maybe let me dimension it.
Yeah.
We're talking about maybe over a two-year initiative here that maybe there's $75 million of annual savings in that layer. It's not insignificant, and I would say that the savings that we found in the middle office layer would probably be 4x of that we've had over the last decade when you look at that, just because of the sheer size. When you're looking at a 16,000 middle office layer, the value versus the 4,000, you're not going to get $250 million of cost savings. It could easily be in the $75 million range on that.
That $75 million, that goes back to your comment that you don't really expect that to fall on the bottom line. It's more just to hire new producers and invest in the business?
I think so. I think that when you look at margin relative to organic, what we've said is that at a 5% rate, you can expand margins maybe 50 basis points. I think there might be a little optimism in the models that we see. It's hard to get to that precision right now, I would caution the world that let's say, our guidance is if we're posting 5% organic, we think we should drop 50 basis points to the bottom line. Some of that $75 million savings is kind of baked into that, but that's over a 2-year period, if you think about it, our raised pools and our hiring, we'll redeploy that. The key on this is to redeploy the service layer headcount and the support layer headcount into the production layer headcount. That's really the value of this.
Maybe the $75 million of savings, if we can put on another several hundred producers that can grow more, maybe that will throttle organic growth more than it will necessarily drop directly to the bottom line. The important thing about it is there are economies of scale that are happening at Gallagher now in a significant way. Just the nature of us continuing to bolt on small, nice family-owned agencies with great salespeople on it, that the incremental cost to support those is pretty small, and we'll see that with this continued effort in the back office.
A couple of your colleagues today talking in the productivity sections have talked about robotics and we hear a lot about that in the insurance industry, which is I guess understandable given how form intensive it is. I know we're still kind of early on, do you have a sense of some productivity numbers that you see in the next 5 years because of robotics implementation? Is it material or is it just something that's fourth or fifth down the line?
No, it's a great question. As a matter of fact, we just. If you look at our offshore Centers of Excellence right now, they run about 5,000 people. Our process, the beauty at Gallagher is that we first standardize and move work into our low-cost centers, lower cost locations around the world. Once it's standardized and once it's into those locations, it allows us to automate that. Whether that automation is building a new system or developing bots to do it or whatever, it's still automation. When I look at our growth expectations of that 5,000 person workforce there, I believe that you'll see that maybe stay at 5,000 to 5,500 over the next three or four years. Because for every task that we push into India, they're going to automate that either through AI or through something else.
I don't think you'll see the growth pattern. We went from six people in 2016 to 5,000 today there. I don't think you'll see that same type of growth, even though we'll double or triple in that same amount of time. I think that you could see a constant workforce there. What does that mean? It means that robotics, probably by reducing the amount of level over there, might be able to contribute $15 million-$20 million a year of true savings if we can really automate that. You have to decide whether that's significant or not, but I say the big thing about that is realize with standardization comes higher quality. With higher quality becomes lower cost.
That is a proven management science that goes back all the way to Deming principles, that you cannot have low cost without having high quality, because the rework cost. In our business, the rework cost is substantial. For us, if we can get it into our standardized service centers, then automate it will raise the quality, and then that leads to better retention. Because clients do get angry when you screw something up that's minor. You issue the certificate of insurance wrong, they get irritated. You issue the bill wrong, they get irritated. If you can reduce the irritation factor, retentions will go up, by definition. We've seen it. It's happened.
Just a quick one. I think the $65 million in fourth quarter acquisition activity, I think you guys have said that that relates to JLT seasonality. Can you explain the dynamic of the seasonality with Aerospace or what that is?
I think there's a lot of fourth quarter. That just happens to be a fourth quarter-intensive business.
Okay.
Just like under the new GAAP accounting now, the benefits business is by its nature a heavy first quarter revenue, right? Because most policies incept for the benefits business on 1/1. It's just the renewal patterns of the all lines that are doing that. I think that's also a good modeling note to make sure that on page, I guess it's page six of the investor supplement, or is it page five? To make sure that your models reflect the rollover revenues from acquisitions.
Yeah.
Just take a quick look at your models on that one. The business is growing organically. We're going to get some really decent margin expansion. At the same time, the amount of investments we're making into the business are large. What we're investing into data, into analytics, into robotics, into niche practice units with cross-selling, white space, CORE360, trading with ourselves, Smart Market leakage. All of these things are going on inside of Gallagher. At the same time, we're posting, I'd say, pretty decent margin expansion along the way, after a history of posting margin expansion for really 10 years now. We're into 10 years of constant margin expansion, and I think that's great. I don't see a recession on the horizon. I don't see a fundamental problem with our sales philosophy. I'm not worried about disintermediation by direct distribution.
Distribution tech, we don't see that as a big problem in our space at this point in time. We're watching it constantly. We're looking at 1,000 different technologies on a weekly basis. We review those. Service tech is there, robotics, et cetera. We're looking at those and implementing some of those. When it comes to the core business, regardless of whether it's brokerage or risk management, those fundamentals are in place. We're in a nice organic period, and we're in a nice margin expansion here. I'm not seeing huge inflation pressures on any front at this point.
Have you noticed anything on the M&A side with just lower interest rates in terms of, I guess, either multiples or have you seen anything, I guess, bigger picture in terms of seasonality, in terms of deals being skewed to one quarter or another? Anything that would lead you to think we would see a lower number of deals closed from now until the end of the year?
It's interesting. I don't know. I think that when we look at the tax activity in Washington right now, could there be something that either threatens capital gain rates for those that are taking capital gains, or is there something that could reduce personal income tax rate? That might have a slight impact on whether somebody closes something in December or January. We'll see what comes through Washington over the next 90 days. I don't see anything as a rush for the door to get it done this year. Do they want to push it into next year? It won't really matter to us whether we close something December 15th or whether we close it on January 15th. I don't see a threat.
We talked about capital gains rates about three or four years ago, where it did have a little bit of an impact if there was a belief that there was a capital gains rate change. It did defer some of the closings as people sat on the sidelines waiting for that tax reform to change. I want to make sure that All right. On that point, Chris, I'm going to just maybe ask you to. I'll hand you the mic, and I really want an unfair question to catch him cold on this, but Chris Ellis is our CFO from Australia. If you recall, we bought the OAMPS business in 2014 from Wesfarmers, which is an industrial conglomerate there. At the time, we said it was running negative organic growth, maybe in the 5% range, something like that.
Today we're seeing that the organic rate, depending on the month or the quarter, somewhere between 5% and 10%. I thought as I'm sitting here, and Chris has the opportunity to listen, I said, "Maybe I'll throw him the ball." I'll just throw it to you, Chris. Maybe for those that are on the phone and those who are in the room, what have you seen in five years of being part of Gallagher, and what are you seeing down there that's making the big difference in why we are having a success story down in Australia?
Sure. Thanks, Doug. Probably the biggest single thing I'd say is it was probably a bit of a lack of sales culture or sales discipline in our business down in Australia. We had good brokers, but actually probably brokers who were more interested in placing business for their clients than perhaps going out and really looking for new business. I think, if you think about Gallagher, it's a sales and marketing organization. I think Gallagher helped bring that discipline to our business. I think that's probably one of the single biggest reasons for the turnaround. I think there's probably a couple other factors as well. I think we've got a very strong management team down there in Australia now. The other bit is, it's just generated a really, I suppose, a winning mentality. That sort of feeds on itself a little bit.
People want to come and work for our business down there now. Gallagher wasn't big there before. The OAMPS business didn't have a great brand down there now, but actually we do have that. We're getting some great brokers and great salespeople wanting to come work for us, and that's really helped drive us forward. It's been a great story for us, actually.
Yeah. For those that are in this room that have always asked the question about margins, I think when we bought that business, margins were 17%.
Yeah. Yeah.
Maybe not even
Not even, yeah. Even a little bit lower than that.
What are you going to do this year?
Yeah. We'll be north of 25 this year, Doug.
Yeah
which is a fantastic result as well. That's a function of the sales improvement, but also just that constant strive for efficiency that Gallagher does everywhere as well.
Yeah. One of the cute stories I had with Chris, he showed up, he called me one day and he says, "When are we going to do capital expense budgeting?" I said, "What do you mean capital expense budgeting? You just buy computers, don't you?" We used to do a lot of that for the industrial conglomerate we're in. "How much are we going to spend on capital items?" It's like, "I don't know, a few computers and maybe an office remodel." How much time do you really need to do that? That was just a kind of a fun 2015 chat. It's like, "When are we going to do that?" "Never." It's not that big. Is that right?
Yeah. It was in the Wesfarmers mentality, and rightly so for the business that they had. For our business, it's not the main game. Absolutely, Doug.
Yeah. Elyse, you had a question? I don't know if it was for me or for Chris, or?
I had a question.
Sure.
I guess it would be great, from all of us, we hear Australia is one of the hardest areas of the world in terms of just price increases.
Sure.
Can you give us a sense of what you're seeing, and just forward expectations, like should we continue to expect 5%-10% organic growth from you?
Yeah. Look, certainly. I think you heard Pat mention the overall sort of hardening market before. I think Australia, yeah, it has definitely seen a little bit of, probably over the last 18 months. I think you'll see that continue for a little bit as well. I'd hate to put a number on it. I'll let Doug and Pat talk to that. You've certainly seen that down our neck of the woods. I think that'll continue for a little while. New Zealand's also the same. I think New Zealand probably, that might be starting to maybe peel back a little. Yeah, that's definitely been part of the story over the last 18 months, absolutely. It's not the main game in terms of why the business has turned around. It's just, it's helped a little bit.
I think it's important for everybody to always be reminded, just because prices go up, our brokers do a pretty good job of mitigating those price increases. That's really what they're doing. They're coming up with more creative programs or creating competition that keeps the rate. That's why our organic doesn't purely follow rates. Is that customers do have the ability to opt out of covers or change their deductibles, their retentions, their limits. You're not going to see it correlate directly in. Unit sales, just increased unit sales in Australia are up nicely.
Just maybe one question. I know in the past you guys have kind of gone around the world, Doug, right?
To say which businesses are not necessarily at that 25.
Yeah.
Australia's now running at 25. Can you just provide an update, what's not at 25? Just give us a sense of revenue associated there so we could just think like what could come from getting other areas to that target.
I think there's two areas right now. I think that our underwriting units in the U.K., call it a $100 million business, are pushing 20% now. There's an opportunity there. Is it $5 million? Okay, something like that. Our retail in the U.K. might have two or three points in it. Australia's there, New Zealand's obviously there. We have some programs within RPS. If I were to break that down, RPS overall is over 25%. There's a few programs within that, call it, if you added up the three or four different programs, maybe there's $100 million that could use another 5%, something like that. By and large, when you look around the world, most of our units are nicely in that upper 25% range. We don't really have any stinkers at this point.
I think that's, we're coming into budget process, unless there's something on the horizon that I'm unaware of, I would be shocked to think that too many of them are what we would call in the amber space versus the green. We have none in the red space.
The U.K. retail, that's $400 million of revenue.
Yeah
That was mentioned earlier? Okay, thanks.
We talked about margin. Let's not be too excited about much more than 50 basis points coming in, but I think that's really solid on 5%. We talked about rollover revenues to watch that. As we enter into the potential last year of our 2009 era plants, we've been talking about this for 10 years. It's going away. There is a possibility that in the tax extender bill, that perhaps this law could get extended. I think we're preparing for a situation where our 2009 era plants have hit the sunset phase of that. You can see that on page four of the CFO commentary. We've been providing this information for 10 years, and many times people ask why.
You can see that our 2009 era plants generate, probably for us after tax, $13 million-$14 million for us this year. Our 2011 era plants are in that $60 million-$65 million, then we've got obviously the royalty income that comes off of our licensing entity, ChemMod. When you look at that, probably for 2020, those 2009 era plants will not be running. That's something you just have to make sure you put in your 2020 estimates. Again, if we get tax reform, or if we get tax extenders and the life of these plants can be extended, that would be terrific to be able to keep it. Again, these are not core. I worry that there's going to be somebody that wakes up and says, "What happened to the earnings from clean energy?" It's never been a core business for us.
It's a cash flow business for us. It generates, right now we're pushing $1 billion on our balance sheet of receivable of cash from the government that we will collect. If the program goes away, all of a sudden now, we will ship $150 million less per year to the government in taxes. That will keep our total global cash taxes paid down in that 5% of EBITDA to 6% or 7% of EBITDA range. That's international, that's state, and that's domestic cash taxes paid. The program has done exactly what Congress wanted. It's created innovation. It's created clean energy. It's created a continued life for coal. We couldn't be more proud of the contributions we've made in that space, hopefully the Congress will recognize that maybe a couple more years will help continue to increase innovation.
There are innovations that are coming on carbon that might lead to credits. We're not actively investing in that space. We're exploring right now, those wouldn't be credits that we would use until after 2025 anyway, no sense spending too terribly much on it today to build something. We believe our credits will last us fully into the late 2020s. I think somebody has asked a question offline or whatever, what would happen to the credits and if Gallagher bought somebody, or if Gallagher was bought by somebody? If you look at Section 383 of the tax code, it would probably say that if we were purchased by somebody, instead of using $150 million a year, we'd probably use somewhere around $100 million-$120 million a year. It's not a big difference on whether we were acquired. If we acquire people, we can use them faster.
That's income that goes up into our business. When you have a change in control related to tax credits or NOLs, there can be some limiters in there that you can. If you want a primer on Section 383 and how it works, I can give it to you offline. The punchline is, it doesn't change the utilization pattern that much, whether we're independent, whether we buy somebody else, or somebody buys us.
I had a few questions.
Sure.
You mentioned the potential for the tax changes, given that these laws expire this year. When do you think we would know something?
I think the real question is, it could go well into next spring, even. It could be retroactive. Typically extenders, if it gets in the extender bill, you'll have some knowledge before the Christmas recess or the year-end holiday recess on that. Could happen here in September. I just don't know where tax is going to fall in terms of the congressional initiative. They've been back to work for a week, and I don't know if they've done anything yet.
You won't give your 2020 guide on the clean energy earnings, that will come with fourth quarter earnings?
Yeah, we will. Listen, I think that if you're trying to do it right now, the estimates that I would have right now is that, all right, fine, we'll make $60 million on the 2011 era plants, and maybe we make $20 million on Chem-Mod because some of the licensing fees they give are on 2009 era plants. If you were picking at $80 million, you are not going to be too terribly far off on it. $85 million would probably be the number. Yeah, $85 million, something like that for 2020. We don't have a lot of plant outages right now. We're getting into the maintenance period now. Natural gas does have an impact on these plants. There's also just a subtle thing.
Remember, we have some nice 2009 locations that we could take an underutilized 2011 era machine and move it into that location. We might be able to use that as an offset for anybody else that displaces coal for natural gas.
Yeah, that was my next question. I thought when we had a discussion about this maybe two meetings ago.
you had said that one of the larger 2009
Yep
you could switch.
Yep.
When do you have to make the decision and take the steps there?
I think we're making that decision now. We were hoping the law would pass, therefore, we wouldn't have to rotate one of the machines out. Again, does everybody understand? There's machines that sit at utilities. If I've got a machine that expires in 2009, there are some 2011 era machines that are underutilized, let's say. We'll pull them out of their current utility location, and we'll put them in to the other utility location where there's production still going on there. That's something that we're in process right now. We've got all the approvals. We've got all the engineering. It will cost us $3 million to move it, something like that, $2 million or $3 million to move it. It might take the plant offline as you swap the machine out. We'd like to do it during a maintenance period. We're just kind of watching that.
If that location were to also declare that they're going to stop producing for four weeks in October or November, I guess we're almost to October, November or December, we might choose to do it immediately and just move it over there. I'm still kind of hoping the government does it for us.
How much, that plant that you're specifically referencing, how much did that generate this year?
I think it was $8 million. Something like that.
If you had to expense, you just said $2 million-$3 million to move it, would that be within earnings or below the line?
That's net in the numbers I'm talking about. That's already contemplated in what I'm talking about.
Oh, okay. Got it.
So-
Thank you.
Anyway, I think the program's doing well. I think it's achieving its objectives. It's $1 billion worth of future cash flows that we haven't received a benefit for, and it hasn't cost us any cash to do this along the way. I think the program, as it's winding down, has been quite successful, so I couldn't be more pleased on that. Mark?
Just to be clear, the $80-$85 in the kind of rough 2020, that would compare to, is this the clean energy? Is this year $96-$106?
Yeah, kind of $100 million, $105 million.
There, right.
Yeah.
Okay. All right.
Which makes sense. If they're producing $15 million, they go away, take the $15 million off. You're going to have some offset by moving one of them. Again, if natural gas prices remain low, maybe the production levels, as more wind and alternatives come online. Remember, the odd thing about this is that every tax credit that we're producing today, tomorrow, and in 2021, really isn't going to get used until 2027 or 2028. It actually improves our cash flows by having lesser production. Our near-term cash flows improve. Yeah. I'd like to get another $200 million of credits that we can use in 2027 and 2028, because that'll be here before we know it. For those of you in this room, when we started talking about putting up these plants in 2009, we said, "Well, that's 10 years away." Welcome.
I still had black hair then. All right. Let me look through. Ray, is there something else that we want to talk about in this while people are catching their breath on that? M&A capacity, we still are on track to do $1.5 billion this year of acquisitions without having to use any stock, except for in certain situations where there's a tax advantage for the seller to take the stock. I think.
How much have you used so far? How much out of the $1.5 billion have you used so far?
I think we've probably spent.
I think it's a little over $900 through the end of August.
Yeah, $1 billion. Yeah.
Yep. $900 million.
Our pipeline's good. Listen, we could have a stellar first quarter next year, too. I think that right now, if we started in a process with somebody right now of any meaningful size, it's not going to close before the first of the year. Our pipeline that started, we have some nice ones that are going to come in January and February, we think. If we get to that point with them. We could have not only a good, strong finish to the year, but we could have a big first quarter, which again, bodes well for a full-year growth in EBITDA next year. To put the cash to work earlier is better.
In your plans, when do you anticipate issuing additional debt? It's not on the sheet, you don't expect through the end of this year?
Yeah. We may do an offering at the end of the year, a little bit. I think we're pretty good for right now, based on what I'm seeing of not having to. We renewed our line. Issuing debt is different than necessarily drawing down on our line. I have to be careful to answer it. We will have some more leverage in the organization, but we'll probably do it on our line between now and the end of the year. Maybe we have to do $200 or $300 million in December or something like that. If we do a private placement, we'd just use that to pay down the line.
If you did $200 million-$300 million in December, there would probably be less that you would do in 2020.
Correct. Right.
Thank you.
The aerospace. I want to talk about that for a second, because I think it's worthy. That was a perfect transaction. Tom said I had an opportunity when I was over there in June. I guess I haven't been in front of you since then to meet the team. It really is a great business, and it took us from a nice little business in that space in order to be a world-recognized leader on that. We've had some wins, and as Tom said, we've had a couple small defections. Nothing that, truthfully, I'm not completely convinced you wouldn't have had those level of defections in that space regardless of whether there was a transaction or not. I think we do lose producers from time to time, not very often, but I think that was actually in the works before we bought it.
Let's talk about the margins, risk management. One of the things we talk about is what's going to happen in a recession. I don't know if anybody's really I stepped out of the room for a little bit. If you really go back to our investor document, in the Great Recession, we only had negative organic growth of 1% for a year or so. Think about it. When rates were down 15%, the economy is down 20% or 30%, the resiliency of our business in a recession is pretty amazing. I don't think anybody sees a Great Recession-like recession coming. Even in a little bit of a downturn, people still have to buy their insurance. They got to stay in business. As Pat uses in a lot of our presentations, it's kind of the oxygen of commerce.
If banking's the oil of commerce, then by definition, insurance has to be the oxygen. You can't do anything, you can't open your doors, you can't ship goods, you can't drive your car, you can't do anything without insurance. I think that we feel pretty good about our ability to grow, even in a recession, and grow at nice clips. Also, I think that because of our investment in our offshore Gallagher Centers of Excellence, I think that we have a nice way to If wage inflation were to come at the same time as a recession, could you have a recession with full employment? I guess, but it hasn't really happened that much.
Even if that were the case, we still have the ability to use our locations around the world that are not experiencing the same wage pressures that you might see coming here in the U.S. or the U.K. or Canada, Australia, New Zealand. That's good. Talk about the stronger currency. Make sure you take a look at the amortization and depreciation in the CFO commentary. I think that's all the notes that I have. Other questions from the group? Thanks. I think that we're obviously pretty bullish on it, and I think that we've got great opportunity to finish the year strong, and we're setting ourselves up pretty darn well for 2020. Like Pat said, I'm really looking forward to going and seeing the presentations of what we call our extern group that's in today upstairs.
Maybe next year when we do this, we'll have a couple of them come present to you. That might be kind of an interesting little vignette. I got to thank Chris Ellis for grabbing the mic when he didn't know about it when he came in the room. I learned something, too. Chris, thank you very much for sharing about what you're seeing down in Australia and New Zealand. It really has been a really amazing story for Gallagher, and it gives us confidence that as we grow, we can continue to bring a great sales culture.