Good morning, everyone. I'm Raymond Iardella, Head of Investor Relations at Arthur J. Gallagher & Co. I want to welcome everyone to our first quarter 2019 Investor Relations meeting, including those of you in the room here in Rolling Meadows, and those of you who are listening in via the webcast. Each speaker today will have about 15 to 20 minutes of prepared remarks, and then we're going to leave it five to 10 minutes for Q&A. For the benefit of those listeners on the webcast, please wait for a microphone to ask a question. Additionally, we just handed out our updated CFO Commentary document, and we posted the same document to our website at www.ajg.com/march12materials. 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?
Good morning, Ray. Thank you very much. Morning, everybody. Thank you for spending time with us today. Gosh, time goes fast. I'm sitting here coming down, going to get a little breakfast, and I said, "My God, we're coming to the end of a quarter." It's like we just finished the year. Patrick, there you go. Turned me on. Thank you. As I was saying, thank you, all of you, for being here today. I think we've got a great day scheduled. I don't think you're going to learn all kinds of new stuff. There's some in the room that have followed us for years. I think we're pretty consistent, but I do think we've got a great lineup today.
As Ray said, we've got the heads of our operating divisions that have come down to spend about 10 or 15 minutes kind of giving you prepared remarks, but then opening it up for your questions and what have you. Please feel free to press on us. Every single quarter when we do our conference calls, we kind of repeat the same strategic efforts that we have afoot. What are we trying to do? I do this intentionally because I really want all of our people-- I would like to be able to stop any of our folks anywhere in the world and say to them, "What are we trying to do?" It's really four things. Number one, we're very focused on organic growth. As you go around this building, and those of you that are in the building can see this, we're very sales focused.
We're bringing people here all the time trying to explain to them why we are a great choice to help them with their risk management needs. That kind of boils down to saying to them, "Look, we think we can help you have confidence in your future." Another way of putting that is that one of the things I'm very proud of being in this industry, is at the end of all the products we sell, basically, we put people's lives back together. There's all kinds of ways. We'll have over 400 kids in our internship this summer, introducing them to what I tell them is the greatest business on the planet. We try to do these four things. Organic growth, and that starts with do not lose accounts because you can't fill a bucket with a hole in it.
Be very aggressive in terms of building a pipeline of new business that you're talking to. Every one of our resources is focused on helping you sell that business. You're not a lone ranger. When I started, you were basically kind of a lone ranger, and you were a generalist. Today, with our verticals and our capabilities in our niches, you don't have to be a lone ranger, and we can be killer good when we're on a call. Organic growth. Secondly, mergers and acquisitions. Started that effort in 1986. We came public in 1984 to get ourselves a currency. I would say 1986 to 1990, if we were doing four to five acquisitions a year, we were kind of proud of ourselves. Today, we're essentially doing one a week.
People ask me all the time, "How can you possibly manage the cultural implications of doing an acquisition a week?" That's just 50, 60, 70 acquisitions, because we don't announce. We announced 48 last year, but book purchases, $1 million deals, we don't announce. We're still doing those. We've become big enough now and diverse enough globally that when we do 50 or 60 acquisitions and spread them out around the globe and spread them by division and then spread them by branch, you might have a branch doing two a year. They can handle that. It's not overwhelming. Plus, the other thing about mergers and acquisitions is that we're not trying to change their culture. Probably 90% of our due diligence when it comes to an acquisition is all around culture. You're not going to change them. By the way, they've got great cultures.
We're not saying to them, "Come to culture land, and you have to change everything." We want to be, as we get bigger, actually more local. Number one is organic growth. Number two is mergers and acquisitions. Number three is getting our productivity and quality up. Go back about 14 years ago, we found that our errors and omissions claims, that's our professional liability, were growing faster than our revenues, our headcount, or our earnings. We were perplexed because there's nothing worse than an E&O claim. When a client is looking across the desk at you saying the insurance didn't work the way you told me it would, it's a horrible feeling in the pit of your stomach. You got to figure out what you're going to do around that, and costs were going up. We really, really studied the root cause of that.
What we found is that we were not doing a good job of checking our policies. When the policy comes in and you've given the underwriter a schedule of locations or a schedule of cars, and they're not on the policy, the underwriter will say to you at time of loss, "The policy rules, not your submission." Now you're in a fight. It's a three-way fight. You're saying to the underwriter, "Look, you quoted that information. You just didn't get it on your pol" It goes round and round and round and round, and the client's in the middle feeling discombobulated. We put together our first-ever effort 14 years ago in India with a center of excellence to see if we could check policies. Today, we have over 4,000 people in India across every single division.
They probably provide about 400 services, everything from issuing certificates of insurance to auto ID cards, to checking policies, to helping us start our renewals. What that's done, and it's been one of my greatest learnings in the last decade, is elevate our quality to a level that our competitors just can't compete with. Remember, when I say compete with, we know that 85%-90% of the time when we go out into the market to compete, we're competing with somebody smaller than we are. Really we're bumping into Marsh, Aon, and Willis about 10% of the time. Very respected firms. They do a great job. They're great competitors, have a tremendous amount of respect for them. We win our share and we lose our share.
When we compete with somebody smaller in a local market, which is what we're doing 90% of the time, I'm of the opinion that we should win. One of those reasons is just simply this. I'll give you an example. I was at a conference, a Reagan conference, Bobby Reagan's firm consults in the insurance agency world. I was on a panel and I said to about 200, 250 independent agents, "How many of you can tell me the quality level of the certificates of insurance that you issue?" Well, nobody put their hand up. I can tell you ours is 99.9%, and I know that because we check it every hour, and we issue our certificates in 15 minutes. We issue millions of them. Why is that important? If you're a client, that's important.
A certificate of insurance is what gets you on a job site or keeps you on a job site. As a leader and having run branches, I've had situations where contractors have called me and said, "You need to understand that if my certs aren't out by Friday, you're fired. I got a BOR sitting on my desk from XYZ agency, and they tell me they'll get the certs out over the weekend." You drop everything in that branch and everyone types certs out, stuffs envelopes. These are the old days. It would be email. Nonetheless, it's a complete fiasco. To me, there's a value in that to a client. Productivity, quality. It shows up in our retention rates, which are high. 95% retention in most of our locations, property casualty and benefits around the world.
You've got to figure 1%-2% of our business is not intended to repeat. It may be a bond, it may be a project, and at least 1% or so are going broke. You got virtually a very, very high 90s retention rate. That's a big part of our organic growth. Organic growth, mergers and acquisitions, productivity and quality, then of course our culture. Hopefully those of you that have come to Rolling Meadows can feel that in the building. We want to give you time to do that because the culture is the differentiator. It's the glue. When I take a look around and I see what, you have good times and bad times in this business. 2008, Allison will remember this, we missed our EBITDA targets from Wall Street by $2 million. Stock went from $26 to $15.
How many people jumped ship? None. All of the options underwater. Now, people were pretty happy when it went back to $30, but it took some time. The culture, and the older I get, the more I recognize that the culture is probably, of those four things, the most important thing. It is what brings people here. It's why interns join us. It's why people stay. The people you're going to see today, many of them have been here both through the internship. I'm now in my 45th year. Many of you that have seen this story for years will know Jim Gault, Jim Durkin, and the others that have presented as well. Spent 40-plus years of their career here. We tell that story. We tell it over and over and over again.
I'll tell you one last story, I'll go to questions and answers. The thing that's interesting to me is I had a chance to meet with the CEO of the Gallup Poll. It was probably about a decade ago. He said, "We think we've done something that is really, really difficult to do." He said, "What we think we've done is poll the human race." Why is that so difficult? To ask a question in Chicago English, London English, Shanghai Chinese, and Hong Kong Chinese, it's difficult. If you're going to ask the exact same question, it's really difficult from a language perspective.
He said, "We think we've done it." I took that on board and what have you, as I travel the world, which I do, and see our offices, it's fascinating to me that, you'll see this downstairs on our first floor, everywhere I go, everywhere I go, the Gallagher Way is posted in our English. It resonates with people. It's our value statement. It's what we're all about. It's how we treat people. One last comment on our merger and acquisition activity. It's interesting. I try to call every single merger partner within about a month of the close of the acquisition. I don't get all of them, but I try to get all of them. Sometimes we just do voicemails back and forth.
What's fascinating to me and what I'm really, really proud of is not one time, not one time in all these years, has someone said to me, "It was all good until I got to the lawyers. It was all good until HR couldn't get my people a paycheck. It was great until the final hour, the pricing negotiations got really nasty." Doesn't happen. What happens every single time is that those folks say, "I can't believe how great the people are that I've met in this process." I'll tell you another thing that's unbelievable is, "I've only been aboard a month and I've called on one or two times to see if I could get some help in one of the areas that we have the verticals that we're so strong in, and the help that comes across is overwhelming." It's unbelievable.
The stuff you were selling in your process really works. Why I've mentioned that to you is I couldn't write a memo to 30,000 people and say, "Henceforth, we cooperate." It's not going to work. What works is they want to help. They want those people to be successful. When we're competing as hard as we are with private equity and with other strategics, but primarily with private equity, and the argument from private equity is: Why would you go to Gallagher? They change everything. Why don't you come to us, keep your name, do what you're doing, stay the way you are, keep 30% of your equity in the deal, and we'll flip it again in five years, and you get two bites off the apple? The ones we lose to that argument, we don't want anyway. They don't fit.
If you're not coming aboard to take your game to another level and to land your people in a place where you've got an unbelievable career path, you don't fit. That's the culture due diligence I'm talking about.
Exactly. I couldn't be happier. The market seems to be pretty darn stable. You read just this week, people talking about a firming market. It's up 2% in the fourth quarter. That's not a firming market. We have a stable market, and that's been that way for a decade, which I think is really good for us, our clients, and frankly, the carriers. This market that I grew up in, which was it hardens and prices jump 50%, 60%, 70%, and then you start a 15%-20% decline for 10 years, and then you do the 50%-100% increase again, is bad for everybody. I think that the management teams of the carriers have taken it out.
We're seeing a little bit of firmness in this line, a little bit of softness in that line, and it kind of works out to be Up two, down two, over three, down four. To me, that's a flat market. That's really great. To me, that helps us take out our capabilities and win the accounts on the capabilities and the quality that we provide, and not on, "Oh, I know you got a 50% increase, and I'm here with a 10% increase." It's better for us. My team works really hard to give me a script, which I never follow.
Sure. Let me just make sure I didn't miss any things they wanted me to talk about. No, I think I've touched on everything, and I'll open it up for questions. Becker.
Pat, after last week's events with a potential Aon, Willis deal, could you just give us your view on the potential for Gallagher to be sold? I know you think of yourself more as an acquirer, just some thoughts there. Thanks.
I think it's known in the marketplace that we're a fiercely independent company. We could sell this business in one week if that's what our intention was. Having said that, we understand our responsibility to shareholders. I think that if you could look into the future with us, you'd see why it would be a very difficult thing to do. The reason is we know that our numbers are just going to go through the stratosphere. We provide a very lengthy planning process to our board, which Doug and his team do a fantastic job of building out a capital plan, which we debate, we bump around, we have many scenarios. The interesting thing about the capital plan is that over the last decade, what we've predicted is more or less actually come true.
Our board has a pretty darn good idea of what we think the stock price should be in five years, and no one's going to pay a premium to that. I would say that the odds of us being merged into one of our competitors are very low. Having said that, we understand our responsibility. Allison?
As you look out the next five years with all the acquisitions you've done, are there obvious regions or areas where you'd like to go? What is your thought on getting into areas where you might compete even more with an Aon, Marsh, or Willis?
Well, first of all, we don't fear competing with any of those people. If we're in a place where the two of us have great capabilities, we'll be happy to fight it out. I think that as you look at us now, the reason in 2014 we did the deals we did globally was to get us platforms where we could duplicate the strategy we have in the U.S., which is to do bolt-ons, because the market has got fragmented. We believe in the U.S., there's 29,000 agents and brokers. Number 100 last year did $24 million revenue. Basically, folks, we're growing more than that every two weeks. If you're number 100 at 24 and I'm trying to buy, I got 28,900 that are smaller than that.
That's why you're going to see us keep doing That's also why our pricing is pretty reasonable. We expect to continue to pay 8.5 times EBITDA for most of our deals, and we look at them as a portfolio. By the way, one of the things I didn't touch on is organic growth. When I talked about organic growth, we feel good about how we did last year, and we see 2019 being kind of similar. In your models, you'd probably want to put in about a 5% organic. That's kind of where we feel it should be. Allison, to be more specific on your answer. In those locations in Canada, U.K., New Zealand, Australia, we'll see an opportunity to keep doing bolt-ons and grow those businesses nicely.
The rates in Australia and New Zealand are a little stronger than that, probably up high mid-single digits. Latin America is a target for us. Latin America's economy is growing quickly. Asia, Indonesia, the Far East, good opportunities in Singapore. We want to build out a global platform. Having said that, we don't see a need or a value in running around the world planting flags. We're not going to jump into this place or that place just to say on the map we're there. In fact, our Gallagher Global Network has got great traction with our clients and our prospects, which is we use the best broker in Romania, and we're happy to do it. Really, we look at the entire globe as our opportunity. I think with a target towards LATAM and Asia. Aaron?
Thank you. Couple of questions. First, I think Berkshire, a couple of weeks ago, talked about launching a product that I thought could pose a threat to some brokers. Can you maybe comment on how you perceive THREE?
My thing is we're going to find this. First of all, we're keeping a very close eye on Insurtech. We've got a person whose full-time job is to keep an eye on that, and who's an Insurtech type person, and everybody's pouring billions of dollars into disrupting this business. We've fought multi-channeled carriers forever. In the end, Liberty Mutual threw in the towel when it came to the middle market and upper middle market, and we bought some of those locations. People are going to constantly be looking. It's interesting. It's part of one of the things I like about this business, is it's really creative. It's changing all the time. With all the acquisitions we've done, I can tell you that no two are exactly alike. It's a very creative business when it comes to how to handle clients.
One of the things I will tell you is even in the personal line space. Notice GEICO's ads today. "Call us on your auto insurance, call us on your auto insurance. We're the number two auto insurer. Call us on your auto insurance. Hey, by the way, if you want homeowners, we have an agency." Ah, trusted advisor, right? I don't fear those startups. Insureon, Lemonade, Bold Penguin, you name it. We're going to have lots of competition, and we better stay relevant.
Second question. You're fiercely independent, most likely you'll remain so for years to come. Can you talk about maybe succession planning and your thoughts about the future? Hopefully, we get to work together for many more years, but I'm just curious what happens kind of the day after.
Well, am I looking a little peaked up here? No, I think that's a very fair question. I'm 67 years old, the board takes succession very seriously. One of the things I'm extremely proud of is that you all may or may not have noticed this, but over the last two years, we made a large number of succession moves. Mike Pesch is our next speaker. Mike is a graduate intern. He's been with us over 20 years of his career, Mike runs the entire property casualty operation in the United States. Well, that didn't happen because one month we woke up and said, "Jim Gault needs to move to chairman." It happened because for 15 years, we've talked about it, Mike's been through the chairs, he knows the business and what have you. Our board takes this really seriously.
I'm not going to sit here and lay it out for you, trust me, every time I go do something dangerous, like I ski every year after Christmas, the stock goes up. If I get hit by a beer truck, put a big sell on this baby.
Hey, Pat. I was at an industry conference last week, there was some large insurers and larger brokers on the panel, one of the insurers talked about a blurring of the lines between slow blurring of the lines between the carriers and the brokers over time because the brokers were investing in data analytics to create programs, facilities, and whatnot. I'm curious how big of a strategic priority that is for Gallagher.
It's huge, Mike. Thanks for the question. Should have probably put that in my remarks, it's huge. It's such a differentiator. Again, go back to my comments. 90% of the time, we're competing with that local broker, right? Well now, and we have this today, we can go out and say to a client, "Clients like you buy these limits." By the way, in the client base of manufacturing, if you take a look at the limits, and let's say the average umbrella is $25 million, and you, Mr. Client, are carrying a $10 million umbrella. Let's take a look at the losses in our manufacturing book that have occurred, and they go from umbrella losses now, just over a half a million, and here's one for $150 million.
We can hover on that, click it, say, what was the $150 million loss? Well, it was a chemical spill into a river that went downstream. We can go all the way down to the claims that are $20 million, $25 million, $15 million, $10 million. Clients like you should be buying at least $25 million in limits. By the way, your $10 million umbrella and the difference in price for $25 million isn't that much money. Once you get over $10 million, rates online aren't that big, but you need the coverage. By the way, how do I know I've got a good deal? Well, because clients like you pay this rate, and we can show you the rate and we can graph it out.
The local competitor comes in and says what I would have said 20 years ago, "You know you got a good deal because I went to The Hartford, I went to Travelers, and I went to CNA, and this is the best deal." Data analytics is huge. We have a full team working on that, and I'll give you one other example. We have a thing called SmartMarket. SmartMarket is carriers having the ability to come into our renewal book and come into Salesforce for our prospects and look at SIC codes, not names of accounts, but SIC codes and say a big contractor. They do road work, click, I flag that. I'd like to see that account. The producer or account executive has the authority to say, "I'm shopping," or, "I'm not shopping." That's based on the client's preference.
If I'm shopping, well, I didn't even know Chubb would want that. Great. Now he picks up the phone, calls the Chubb underwriter, and says, "You flagged this. Let's talk about the account." Well, those companies that are buying SmartMarket are growing with us at a faster pace because they're coming in. They're not just coming around the office saying, "Hey, Gabe, it's great to see you. Have you got an account for me today?" "No, I'm busy. Thanks very much." I walk down the hall. They're actually in the data. We have more going on in terms of data analytics than you can shake a stick at. We've got dozens and dozens of people working it. It's going to be a huge differentiator, and I think it's a category killer on the little guy because you just can't give me anything.
Couple that with thank you, Aaron, for your question about my succession. Couple that with the baby boomers are retiring at a fast pace, and the fact that you and I play golf together every week doesn't cut it when your son or daughter takes over the business. She's got to say, "I got to protect the business." Great, you've got the Jones Agency, and we've done business for 35 years, but the Jones Agency, they don't have this. They can't tell me that people like me buy this. It's huge. We have time for one more?
Given all the dynamic that you just discussed, would there be a possibility that Gallagher accelerates its M&A activity? Instead of 50 to 60 a year, make it 100, 150. Is there any possibility for something like that?
Yes. That's part of the dream. If you take a look at what we're selling today and you compare it, I won't share the numbers with you other than this one. I was in this room, this area, when my father, in 1976, cajoled us to accept a goal of new business of $1 million for the corporation for the year. That number today is well over 700. That's new business from the street. Yes. For instance, every one of these acquisitions that we do, these people are community people. By the way, the other thing that is part of the secret sauce, and go back to the culture is, if you notice, we don't divest much. What we're good at is finding out that you want to join us, but you'll stay because you've got leave money.
Once the deal's over, I've gotten one of our young people who's at a closing, and this is western Illinois, past Rockford. He's at a closing, and the guy looks down at the closing and says, "This check." The check's $4 million. He says, "This check is mine, right?" He says, "This is a closing." "Yeah." "All right. I can take this check, and I can take it to my bank, and they're going to put that check in my checking account today." "Yeah." That guy comes to work on Monday to sell insurance. How cool is that? His large clients look at all the stuff that we're doing, data and analytics, all that stuff, and says, "Thank God you sold your business. I didn't know this was out there." The two marry up. I do think.
We're never going to do what some of our. The most active buyer in the market is Acrisure. It's interesting, go back to the panel of Bobby Reagan, the two of us are sitting on the panel, and his thing is, "Look, I don't want you to change anything. I'm going to buy you. I want you to keep your brand. I want you to sell insurance in your town the way you always have, and I want you to send the check to me, keep some equity in the deal, and I will go buy more." What you're going to get is just the check. My comment from the panel was, isn't this great for all of you independent agents? You've got two drastically different approaches. Change nothing, keep your name, stay the brand, no niches, no interns, no new hires.
Just get your margin up. My thing is, we want to change everything for the better and give you more strength, more power, better career paths for your people, and have the strength of our verticals to be category killers. If that doesn't turn you on, you don't fit. Thank you, Ray. Thank you, everybody, for being here. I really appreciate it, and have a great morning. Good to see you.
Next up, we have Mike Pesch. He's going to spend the next 25 minutes talking about our U.S. retail property casualty brokerage operations. Mike?
Good morning. Thank you, Ray.
Anything?
As Ray said, I'm Mike Pesch, CEO of our U.S. property casualty business. I'm based here in Rolling Meadows. As Pat told you, I grew up in this business, was an intern in college back in the early '90s, and I've had just about every role in this business, from a producer to a branch manager. I'm excited to be here and tell you a little bit more about what we're doing in the U.S. The U.S. business is about $1.4 billion in annual revenue. That's where we finished 2018. It's a great business. It's one of our largest in the network. About 33% of our overall revenues are U.S. property casualty. Grows in the single to mid digits organically, and we run in the mid higher end margins in the 20s. It's a good business.
It's one of our more seasoned businesses, then I'll tell you a little bit more about what we're doing to continue to grow it. Basically, what we do, and you probably all know this, we are the intermediary between what we define as mostly commercial businesses and the insurance carriers. As Pat said, 85%-90% of the time, we compete against someone who is smaller than us. You'll see us most prevalently working with middle-market organizations. These are companies that the CFO, who wears about 15 other hats, is responsible for buying the insurance. They don't have a risk management department. That's really important because of all the stuff I'm going to tell you about what we do to add value to their placement.
I will also tell you that we handle accounts all the way down to personal lines and small commercial. We also handle accounts all the way up to risk management. Pat said 15%-20% of the time, we compete against Marsh, Aon, Willis. Those are typically on your risk management accounts, and we feel we can go toe to toe with any of those folks in terms of the value that we can bring to the equation. That's in a nutshell what we do every single day. I will tell you, in our business today, and you probably see this and read about it's become more and more of a consulting-type sale. Our ability to drive continued value, I know there were some questions about other firms going more direct to the customer.
My team is constantly focused on how do we add more value to the equation. How do we give our clients more tools, more resources, more data to help them make better decisions? Remember, many of them don't have big, sophisticated risk management departments, so they rely upon us to give them that critical information. Again, that doesn't mean that risk management accounts don't need the kind of information that we can provide. They definitely do. By and large, our clients, and when you think about the acquisitions we make, when we buy an acquisition, when we buy a firm in Columbus, Ohio, or Las Vegas, Nevada, if it's a $10 million or $15 million revenue firm, many of their clients are going to be just like ours, thirsty for more information, thirsty for more resources and tools. That's kind of the bigger picture.
We represent just about every major carrier that's out there in the marketplace. Like most of our larger competitors, we trade significantly with the carriers that have a significant market share here in the U.S., but we do represent just about every carrier. A lot of smaller regional carriers are really important to some of our offices locally. We're trying to do the same four things. We're trying to grow organically. We're trying to bring in great mergers and great new hires. Trying to be as productive as possible, we're constantly looking at ways to become more productive. We're trying to establish and build on our great culture. Growing organically. For us, about five years ago, we came up with what we call CORE360. It's this little button right here that I'm wearing. This CORE360 is about our value to the customer.
It represents six different things that we do, I won't go into them. It would take an entire hour to go through exactly all the different things that we do. Again, as you can imagine, a middle-market company, they need to know, how much insurance should I buy? What limit should I take? What do I do to be more safe? How can you help me be more safe? All those sort of things enter into what we call CORE360, and those six what we call cost drivers drive the behavior of our salespeople, our producers out there in the field. We're also trying from an organic growth perspective, we're trying to be as strategic as we can from a product perspective.
We're constantly out there looking for unique ways to partner with our carriers, where we think there's opportunity to have specific lines of coverage that we can add value. A great example of this is umbrella coverage. Umbrella coverage, we have a suite of products we call Gallagher Advantage. Umbrella is a largely misunderstood coverage, but it's one of the most simple coverages because everyone typically has to buy it. There's many unique endorsements that can be added to those placements that often are missed in the field. We've gone out, used our scale, our scope, our intel with the folks that we have internally that are experts in casualty and experts in liability, and prenegotiated terms and conditions with numerous carriers out there for the benefit of our clients.
When our producers are out there renewing their umbrellas, they have the choice to use one of our Advantage products, which give them unique, better coverage, overall better placement for those clients. Carriers win because they get more of those placements. We've gone through and figured out what line of coverage can we do next. We've added about seven or eight additional coverages, we're constantly looking for unique ways to differentiate ourself in the marketplace. One of the ways that we're using data, we're using it externally to help our customers make decisions, we're also using it internally to make sure that our trades are well compensated. I should've said that we get paid on a commission or a fee, we're really indifferent to whether we get paid on a fee or commission.
When we're paid on a commission, which a lot of our clients would like that. They want to have one seamless, one invoice, one negotiation, one discussion. We're fully transparent, so our clients know exactly what we make. Internally, we use information that we have to make sure that we're fairly compensated at the trade level, so that our producers know that if we're getting 12% compensation on a placement on a general liability policy in New York, and we're only getting 10 with the same carrier, know we have contracts and we negotiate that stuff. It's always a negotiation with the underwriter that they have something to use as ammunition to go back to that underwriter and say, "No. You're paying 12% commission. You're doing it over here.
I want you to do it over here." It's another way for us to get paid fairly for all the work that we're doing. Pat mentioned SmartMarket. SmartMarket is a unique way for us to trade with our carriers. We don't have every single carrier up and running on SmartMarket. Our goal is to have it to a confined group of carriers that will understand and eliminate inefficiencies in the whole trading process. Again, Pat is exactly right. If you can imagine, we have about 75 retail offices in the U.S. We have about 1,200 producers. If you can imagine, if you're Travelers or Chubb trying to figure out, what does this person have in their book of business? What does this person have coming up for renewal? What is this person working on from a new business perspective? How do I know that?
SmartMarket gives them a lens inside of what we're working on, makes it a lot more efficient, makes us keenly aware of what the market is doing. Markets change their appetite all the time. I would never want to be in a situation where a market has changed its appetite or interest in a certain industry, and one of our producers has missed that. Our ability to give our carriers and our producers a lens into what's happening and live ammunition on what's going on in the marketplace to make sure that they're aligning their appetite with the carriers is really, really important. On to mergers and acquisitions. I'll take a step back. We're also using, from an organic growth perspective, our data to help us coach our clients on what they should be buying. Pat mentioned it, others like you buy this.
We call it white space. If I'm a wholesaler right out this window here and other wholesalers just like that one, same demographics, same size account, same industry, same focus. What are others like them buying? It's an opportunity for our producers not only to educate their customers to make sure that those clients are buying adequate insurance, but the opportunity to obviously sell more, especially when it comes to limits of insurance and umbrella. We're using our data to help us become more and more powerful in terms of giving our producers and ultimately our clients the ability to make better decisions. Others like you are taking this kind of retention. Others like you are paying this rate for this line of coverage. Others like you buy this much insurance and others like you buy these coverages.
That kind of quantitative information is really, really important, which kind of segues into mergers and acquisitions. Pat talked a lot about it. I won't go into too much more detail, but we had about 21 acquisitions here in the U.S. in 2018, and we've got a tremendous pipeline. We've got folks out there actively building relationships, and it is about that. It's about building relationships with these folks. We often get put in a situation where someone has engaged a business broker to sell their business, and if we think it's the right fit, we will compete. Hopefully, we've built a rapport and a relationship with that business owner over a number of years. If we do that effectively, we think we have an opportunity to tell them about our story.
I'm telling you, those folks out there, those $2 million to $5 million to $10 million firms are thirsty for this kind of information because they're getting asked by their customers all the time. Pat talked about the demographic shift of the business buyers. It's happening every single day. Just as much as we're thinking about perpetuation internally here at Gallagher, our clients are thinking about perpetuation as well. What are they going to do? That next generation of buyers expects this kind of information and use of data to be able to make better decisions. Our merger prospects are recognizing this. They understand that they're ill-equipped because of their size and scope to be able to give this kind of information to their clients. The other ones that have their head in the sand, as Pat said, they're not a fit.
They think that selling insurance 20 years ago is going to be the same 20 years from now. Sell to somebody else. If they're in it because they're in it for their customers and their people and their career paths, then Gallagher is a great destination for them. That starts with having a great story to tell in terms of all the value we drive to their customer because the best merger partners care about one thing first, and they care about their customers. Care about their employees. They care about their customers. They want to make sure they're taken care of. They want to make sure they're on the cutting edge of everything that's going on in the insurance business. Productivity and quality, Pat talked a little bit about it as well.
Our business here in the U.S., Pat talked about 4,000 folks that we have over in India. About 25% to 27% of our work is done offshore. Policy checking, things of that nature. We've been doing it the longest, and it's been a home run. Pat talked about it, so I won't reiterate it. Our clients, when you think about certificates of insurance, expect and want us to be able to give them to them the moment we renew because they're waiting on a job site. They're waiting for this to occur, and we have to have 100% accuracy. The ability for us to do that, and with our colleagues over in India, has been a game changer. We're also investigating and constantly looking at things like small business and personal lines.
In the small business area, we've built out hubs across the country to make sure that we're handling that business efficiently and effectively. Those clients have different needs from a buyer perspective. They want different things. We have to be prepared. Particularly, we're competing differently when we compete with those folks. There are folks out there, like was mentioned, that are trying to go direct, and we believe they still want choices. In fact, they tell us they want choices. We still think that there's a great opportunity within small business, and the same holds true with personal lines. We're constantly exploring how we eliminate inefficiencies in personal lines, and still give great value and deliver great value to our customers. The last thing is culture. Pat, I think did a fantastic job of it, but that's really what it's all about.
It's about getting the right people in our company, people who we believe can add value and are engaged and excited to be here. I'm very proud of the fact that in the U.S., in 2018, we had 25 power brokers recognized by Risk & Insurance Magazine. These are experts in their field. Those folks tie into our organic growth strategy. They're typically in niches or industries where they're recognized as being the best in their class, best in their business. Also talk about getting people on board and recruiting people. We have a program called Hire Right, where we go out and recruit folks from inside an industry that maybe don't have insurance backgrounds. We bring them in, and they're usually very good in understanding their business, so whether it's construction or healthcare or what have you.
We partner them with colleagues here in the U.S. who are experts in insurance in those industries. It's been tremendously successful, getting good quality people into our business for the benefit of our customer. I'll share two stories with you. First is Chatter. I think it epitomizes our culture, but we have a thing called Chatter, which is our internal communication on how we ask for help on certain things, and it's not monitored.
As Pat said, no one sends out a memo saying, "You've got to respond to a Chatter post." If you're a producer in Columbus, Ohio, and you have I don't know why Columbus is on my head right now, but if you're a producer in Columbus and you've got an account that you want to renew, and you're having trouble renewing it, or you have a question on what the marketplace might look like or what limits, and you're not getting the answer from the data we can provide, you can put an outreach out to all people who write in that same industry through Chatter. Typically, within 15-20 minutes, we get anywhere from five to seven responses.
These are people that have no vested interest in placing that account, but are there to help their colleagues, giving them advice, "Try this, do this, talk to this person." To me, that's culture. They're not paid. These are producers sitting at their desks, could be 1,000 miles away, and they're to help support their colleagues because they know they need help. The other story I'll share with you from a cultural perspective is, we do our annual recognition for our top production talent. We happen to do it in Chicago, and we do it in February. We bring in our top performers from all across the country into Chicago in February.
Someone once asked, "What's the prize for 2nd place if that's the prize for 1st place?" We bring them in, and when I took this job a couple of years ago, there was this undercurrent of people saying, "Hey, I'd really like it if we went somewhere warm where we can enjoy each other's company." I said, "Well, we have about 600 people at this thing, and recognizing our top, and we do a lot of networking, and it's really positive." As I toured, I went to almost every office in the first year that I had this role, and I'd always ask people informally, "Hey, what if we moved President's Club?" "Well, yes, for sure. Let's move it. Let's go to Phoenix in February. Let's go Florida." Great. I said, "There's a catch. Catch is this, you can't bring 600 of you to Florida.
I'm working on a budget. If I have a certain dollar amount, going to Florida in February is expensive, more expensive than going to Chicago. I'd probably bring half of you. "Well, wait a minute. Only half of us get to go? That's the one thing we enjoy the most is being around our colleagues, spending time networking with people that we enjoy working with." I'm out. Keep doing it in Chicago. To me, that speaks to our culture. Our folks genuinely want to be with each other. They genuinely like trading with each other. We do more business internally together. You're going to hear from Bill Ziebell later. He runs our benefits operation globally.
Bill and I are constantly talking about ways to figure out how we get our folks together for the benefit of the client to add value to the customer experience in terms of benefits and property and casualty. Our people enjoy working together. They enjoy thinking about the customer's problems and solving those things. With that, those are the four pillars. Again, we compete 85%-90% of the time against folks that are smaller than us. I think we have a lot of strategic advantages that they don't currently possess, and we're constantly adding to the armory of services and tools that we can provide. That's what gets me excited about this business. Ray, do you want to open it up?
Both you and Pat discussed the growth opportunities within Smart Market.
Is that growing double digits? Can you give kind of a gauge on, is it mid-single or faster than that? Then, I guess, how big do you think that can get? Is the goal to get every carrier on Smart Market? Are there certain that would be better fit versus others?
Yeah. Over there?
No. Some of it is proprietary, so I won't go into too much detail, but I will share this with you. It is not intended to be a representative sample of every carrier that we trade with. Think about it, not every carrier is licensed in every state. For us to make sure that we can provide this as a technology that our producers can benefit from, if I have producers in Louisiana that can't use it because there's a carrier that was on that panel that's not licensed there, that's a problem. Doesn't add any value from that perspective then. We will have it, like I said earlier, to a sort of defined group of carriers.
As far as growth is concerned, I'll share with you that because I think we've eliminated inefficiencies as it relates to the trading process, those carriers that are on it, by and large, are growing faster with us than they are growing as we track their reported numbers quarterly. In many cases, it's very significant. Well into double digits compared to single-digit growth. I think it's been a win. The clients, of course, win because we're matching the right carrier appetite with the right account. Producer wins because they don't have to memorize every carrier's appetite nor do they have to meet with carriers and debate what they have coming up in the future. It's a lot more strategic.
I don't know if that answers your question, but we're going to keep it to a very defined group of carriers that we think have a broad enough appetite and trade in every state.
You mentioned personal lines. Maybe you can kind of elaborate on what's going on in that business line. It feels like it's becoming more commoditized from a consumer buying standpoint.
Yeah.
The direct carriers are making good inroads. Maybe you can remind us how large that business is as well.
It's not a huge business for us. Roundabout numbers, it's probably about 5%to 7% of our overall revenue. But it grows because every time we buy a firm, a $10 million or $15 million firm, 7%-10% of their business is personal lines. Again, just like we did with small commercial, we're looking and exploring ways to add value to the customer experience. I'll give you a perspective on that. With small business, we realized that our size and scope carry with it a big advantage. We were able to partner with firms like Office Depot and hardware stores and other things that small businesses need, and go and pre-negotiate discounts with those vendors because we were trading with them as well, and then provide what we call Gallagher Perks to our small business clients.
If I'm a Gallagher client, buy my insurance from Gallagher, I also get these additional Perks. And it may seem small, but to a $500,000 florist, that's big. They can save 10% here, 15% there, just because they're trading with us as their insurance broker. That's big. We're exploring other ways to do that with personal lines because I think there is a value add we can bring as a service provider. But I would probably argue to you that personal lines, in the small personal lines, there's differences, right? You've got your sort of standard personal lines that you might see other brands out there like GEICO and Progressive and so forth. And then you've got sort of that high net worth. And that's a very defined market.
We're very focused on growing that out because those folks do want special care and special advice and sort of the red carpet treatment. And they want to be with carriers that understand their business or understand their assets and how diverse those can be. And so we have a whole strategy set up for those folks. But your standard personal lines, it's about doing it efficiently. It's about eliminating smaller trading relationships. If you can't do a certain amount of business with those carriers and have that leverage with them, then in that space, it's probably not worth it because of the commoditization of it. But that standard personal lines has always been commoditized for a long time. But I didn't really mention the marketplace. I would echo everything Pat said. We don't really see by any line other than maybe auto.
Auto's a big impact on personal lines as well. We see hardening. I'm sure you've heard that from other folks. Comp and those lines have sort of stabilized. They were on a sort of downward trajectory. And casualty is, again, very, as Pat would say, stable. But auto, back to the personal lines thing, is a problem for a lot of individuals out there right now. I think having choices and not just simply going direct is an advantage as a broker.
Thanks. You've touched on a lot of things with the value proposition between going direct and being specialized and helping your clients out that way. I'm wondering if you could talk about how this all fits in with the transparency on the fee and the commissions. Are you finding a lot of pushback as people evolve into thinking they can do more direct or more commoditize almost everything? Are you finding that the balance between the transparency and demand-
Let me try to reframe your question. Are you saying from our clients, are we getting pushback on whatever commission or fee we are making on their placement?
As a producer, I'll tell you this. I loved having that conversation with my client because now you're really talking. It's not just simply, "I went out and placed coverage for you." Now you're talking about all your needs. What do you need? Do you need more safety? Do you need more claims help? Do you need more contractual liability help? Do you need more program structure help and guidance? It's not just simply about I went to the marketplace and got you a quote, and I came back and here it is. That kind of speaks to the brokers out there that sort of have their head in the sand. The 20 years ago is going to be 20 years from now sort of mentality. They're not thinking about that value add.
They have, in many ways, as Pat sort of alluded to, that country club relationship. As those buyers change over, what are they going to expect? They're going to expect value. We've coached and trained our producers on how do we drive value and help our producers explain the value that we're giving, so that when they get into a situation where another broker's come in and said, "Well they're charging you $100,000? I'll do it for $80,000." Okay, that's great. Now let's decide what you're getting for that $80,000. What kind of resources, what kind of tools, how are they making you a better employer? How are they making you safer? When you have large claims, how are they helping impact those claims? For us as a producer, there isn't any pressure. It's actually the opposite.
Those are the kind of conversations we want to get into.
All right, I think we're out of time.
Okay.
Thanks, Mike.
Thank you all.
Next up we have Tom Gallagher. He runs our global property/casualty brokerage operations. He is going to spend the next 20 minutes or so talking about our international property/casualty operations. Tom?
Good morning, everybody. Mike talked about our President's Club, and I will tell you what, he is right about the way that everybody sees our President's Club, our award event in Chicago. I have been trying to get the guys from Australia, the U.K., South America, not to come to Chicago in February, and they all want to come here to be around all the rest of the traders in the company. It is fascinating to me. Think about it. We do not buy them business class seats. We send them coach and say, "You want to come to Chicago from Perth?" It is a day and a half travel to get here, and yet these guys are killing themselves to come. It is a great statement about who we are and what we are trying to accomplish as our business around the world.
The other thing that Mike was talking about, Allison, was the discussion about transparency. I always like to come on back to the fact that we actually buy insurance on behalf of our clients. We do not really go on out there and sell it all the time. We are actually buying it on behalf. That relationship, they know what they are paying for. Interesting, in the U.S., when we went completely transparent, our retention rate went up. Think about it. It went up significantly, and it has been holding at that level for more than a decade now because that is how long we have been transparent. Right? Let me talk a little bit about the global enterprise outside the U.S. Dimensioning it, we have got more than 7,000 of our teammates who wake up every day in GGB outside the U.S. in the commercial brokers business.
We put on our jersey and work really hard on behalf of what we are trying to build around the world. Our biggest areas around the world, the U.S., the U.K., Canada, Australia, and New Zealand. In the U.K. today, we run about a $350 million retail brokerage business. When we close the Stackhouse Poland acquisition, when we are able to pull the team across from JLT, that number is going to change. The reality is, at this point in time, in our world, it is about a $350 million business in the retail side and about $250 in regard to the wholesale specialty brokerage in London itself. Our team in retail business have about 60 offices all over the country. We will not be consolidating those down into eight, 10, 12, 15 offices as many of our competitors have done in the U.K.
The reason that we don't do that is because we really, truly believe in being a community broker in the U.K. We believe that by being a community broker and being close to the opportunities, we'll have better retention because you build that trust relationship, and we'll create more opportunities for more sales. Both really are beginning to take hold for us in the U.K. right now. I've told this story in the past and I can tell it again. When we did the acquisition of these brokerages in the U.K., we had one guy in one of our offices in the Midlands say to me, "I'm really excited about being part of Gallagher because during my career I've worked for seven separate agencies and I've never moved.
They just keep getting bought out." Now, four years, five years in, the reality of the story is that we're there on a consistent basis with a real local presence means a heck of a lot more to him today than it did even then. The team is really beginning to drive organic growth in the U.K. and it's very exciting to watch. In our London specialty offices, we are among the world's best at energy, construction. We're going to be pretty darn good in aviation and aeronautics very quickly. We're great in marine. We're fantastic when it comes to cyber and PI. It's a really great team. We're incredibly fortunate to have a team that's that committed to our business in the U.K. Great organic growth last year, continued organic growth.
It's interesting what's happening with us in the U.K., is that as we continue to really tighten up how we trade with each other inside of the company, it builds the momentum for what we're doing in the U.K. Really exciting times for us there and great opportunity for us in the future as well. Turning to Canada. Canada is about a $200 million business for us. It was a merger of a team that came into us about five years ago now, and over the last few years, we've put together a couple of great merger partners to join us. GPL in 2017 in Montreal, really classy, well-run, organic growth business. Then at the end of this year, start of 2019, we picked up Jones Brown, principally in Toronto. I love the guys in Jones Brown. The age profile there is terrific.
We had one of our guys in Jones Brown, we announced the deal on January 8th. On the 15th of January, he sent me a note and said, "What's taking so long? We got to get this thing done." "Whoa, don't worry. It'll be okay. We've got a good plan of how to bring you guys in and where we could take the organization." That's the kind of merger partner that we want. That's the kind of merger partner that we get very excited about. When you look across Canada, where are we great? We think we're terrific in construction, mining, energy. We think we're very good in motor. These are strong practice groups inside of our business that we continue to take forward year after year. Canada, again, organic growth last year, good load. Organic growth, low single digits, mid-single digits organic growth.
We actually had true organic growth among all of our businesses around the world, which is terrific, last year. We announced the 5.8% inside of the organization as well, and our team was terrific in being able to deliver to that around the world. Moving on to Australia and New Zealand, you've got about a $350 million business down there between the two countries. I talk about it each time that I come and visit with you is the fact that our business in New Zealand is about the population of Wisconsin, maybe a little bit larger in land mass, but it's about the population of Wisconsin. Our business in New Zealand is 10 times bigger. They dominate the marketplace out there. They actually have probably about a 30% market share.
The interesting thing about it, you would think that a team that actually drives great margin and 30% market share would have a hard time growing organically, but they absolutely killed it last year. They killed it. It was not just about the hardening market, because that is topping out in New Zealand and Australia. It's not as hard as it was a while ago. What's great about this team in New Zealand, too, is that they are never sitting still. They're trying to completely reinvent who they are and what they're about right now, and it's fun to watch the things that they do, which for our business on a global basis, are cutting edge. Australia, we do the Wesfarmers acquisition five years ago, and five years ago, that business was going backwards organically, significantly, year, on year, on year. Today, in 2018, we had great organic growth.
Really solid, significant changes inside of that business. Sarah Lyons runs our business in Australia. The very first time that I went down there to visit with her, I said, "Sarah, tell me about your leadership inside the country." She said, "I've got this many A's, this many B's, this many C's." I said, "You know what your job is?" She said, "I do." 12 months later, I'm back, and there's only one of the people that was a C leader still in the company, and that person's gone. Quality person, making a significant change in the way and the shape of our business down there. As Mike talked about, as Pat talked about, our entire approach to the company on a global basis is organic mergers and acquisitions, operational excellence, and our culture.
When we look at organic on a global basis, it follows the same playbook, not as much. We're not as advanced in some of these things as we are in the U.S. We're just beginning to take SmartMarket beyond the U.S. There's excitement from our carriers about taking SmartMarket around the world. We don't have the cross-sell initiatives that we have in the U.S. embedded in the business. We're rolling out our practice groups so that they connect with each other around the world today in a better way than they have in the past. It's been a really interesting process to watch these teams come together.
We put together a meeting last October, November, of our team in real estate and hospitality, pulled probably 25 people from around the globe into London to really talk about how can we take what we know is really good and enhance it, that product, drive better resources, work better together. We've had great early success in it. Transportation around the world. I used at the President's Club, an example of one of our merger partners down in Australia, built a great relationship with one account in Australia. That led to picking up the business in New Zealand, led to picking up the business in the U.S., Canada, we're on our way to picking up the business in the U.K. as well. It's funny, I was down in Singapore in January with our team in Australia on another transportation account.
As I sat in the meeting with these guys, our buyer looked at me and said, "This is a guy who lives in Singapore, he's Singaporean. I had dinner at your house back in the 1990s." That was great. He goes, "This is a guy who's actually connected to our organization for more than 30 years." We had a terrific meeting. We picked up a little bit of the business before we got there. That's how we got in the door. We're on our way to picking up a huge chunk of the business in the U.K. right now. That's the kind of relationships that can go back generations. I didn't even have any idea. It was a terrific opportunity for us to come together as an organization that is slightly different than what we were back in the '90s. What else are we doing organically?
Cyber product development and cyber. We've got a great team in the U.K., transported it into the U.S., transported it into Canada, driving it in South America, driving it in Australia and New Zealand right now. Can we take product after product and product and do the exact same thing? We are, we'll continue to. Just had great results from that right out of the box. Look inside at the other things that we're doing to drive organic growth. We've talked about it since I've been here. It's more feet on the street selling. We measure it all the time. We're trying to make sure that we keep more salespeople out there driving the business. That's the way that we're going to win, is by continuing to expand the number of salespeople that we have, whether we're hiring teams or developing people inside the organization. Our leadership.
Last week, Mike and I took probably four hours between us and some others with some of our new branch managers in the U.S. We sat down and talked to them about what does it mean to be successful in our business, what's that one thing that you have to do to be successful in our business? That one thing was help drive organic growth. Drive it right from the very beginning of the process. We've got not only the new leadership group in the U.S., we've got next gen going in the U.K. We've got two separate groups of next-generation leadership in the U.K. that are beginning to take on responsibility for our P&L in the U.K., various locations around the country.
What was really fascinating to me was sitting in a room where four of our new branch managers in the U.K. got the opportunity to talk about their experience of what it's like to be a branch manager. As many times as the talking heads, Mike or myself or Pat, come in and talk, they were riveted with the conversation and just pounding each other with questions about how are you doing it, what's making it happen, how are you driving the business? It was terrific to actually watch them do it. We continue to see the opportunity by driving a second group of people, 60 separate locations in the U.K. We will put 15 to 20 new branch managers out into the network in the next few years, helping get these people set to be able to drive one of our P&Ls.
We're taking the next generation idea or the development of new leaders into Australia and New Zealand as well. Organic growth. Organic growth. We not only do the organic growth. We're mergers and acquisitions. Think about the globe right now. All of our businesses around the world, Australia, New Zealand, Canada, and the U.K. On the retail side, we're having success at actually doing great mergers. Great mergers. Really excited about the Jones Brown people, as I mentioned, in Canada. I've actually gone out with permission from the principals, gone out, though we have not closed on Stackhouse Poland, I've had the opportunity to meet probably 65, 70% of their leadership around the U.K. Environments like this, where we're just sitting around talking about the business and how do we take this business forward over the course of the next five, seven, 10 years.
At that point, I'm retiring. I don't care. Imagine if we can continue to do that. There are great businesses in the U.K., great businesses in Australia, Canada, that we still have a strong pipeline of merger opportunities. We have a footprint in Asia, a footprint in South America as well. They're much, much smaller businesses. Over a period of time, as we talk to our board, we're just incubating. We're just working on those at the moment. Moving on to driving process and operational excellence. We do that in the U.S., we do that in the U.K. There's still work going on in terms of agency systems and what we're trying to drive in the U.K., both in the specialty side and the retail side. Australia has got some work being done there as well.
Other than that, get them up on a platform, work with our Gallagher Service Center, drive process as effectively as we can. When we drive process, we deliver a better product to our clients, which enhances retention. Drive process, we are able to plug and play. If there's somebody gone, we can help out. I'm sure Pat and Mike have talked at various times when we've had situations where an office was closed down, so we can actually move work. Five years ago, you couldn't do that. 10 years ago, you couldn't do that. Today, we can move work all the time. That same thing now has the ability to happen for us around the world. Look then toward our culture. That's what we're trying to do all the time, is just drive our culture all the time.
What is it that we can do to continue to enhance our brand, our reputation? Our brand, over the course of the last couple of years, with Chris Meaden and his team, has had a real shot in the arm. You go into the U.K., people used to say all the time when I would go out there, "This is a great company, but nobody knows who we are." There's nobody who doesn't know who we are in the U.K. today. Nobody who doesn't know who we are. Our Rugby Premiership, they are announced again and again in the papers virtually every day. It's been terrific for the team. They're incredibly excited about it, and it's generating real opportunity all the time.
The interesting thing about it is that that doesn't only just have impact in the U.K., but our guys in Australia, our guys in New Zealand, and our guys in Canada, they all are saying it's having an impact for them as well. Beyond that, it's about trying to drive the culture of we are committed by virtue of our mission statement to be focused on the clients, be focused on our team, and focused on our markets. Those are the key drivers between us and what we're doing every single day to deliver on behalf of our clients. With that, any questions? I'm happy to answer it. Please.
Hello.
Good morning.
I had a question on expanding beyond the English-speaking markets where you've had great success. Whether it's Brazil or Taiwan or whatever country you want to talk about. What are the barriers? Is it culture, language, regulation, rivals, market structure? Does it differ by country what the barriers are? Whatever those barriers are, how do you overcome them?
Sure. Beginning back in 2012, we took a minority stake in a broker in Mexico. 7 years later, we still have a minority stake in a broker in Mexico. Today, we have operations in Chile, Colombia, and Peru. They're good operations, and they're good people. What's great about what we see in our team in South America, the same thing for our team in Singapore, the relationships that we have in a couple of other places, you saw the announcement in Indonesia. About 2 years ago, we did a minority partnership in the Philippines. The case is that the business is done exactly the same way we do it.
This is high integrity firms that are committed to their clients. We have to deal with the regulations of the individual countries. We know it. We have to deal with the language barriers. We know it. We have different agency systems. We're not trying to put them on top of our English-speaking, one currency systems. We're trying to work our way toward how do we continue to expand in those regions and do it very carefully. I think you will see that we will continue to expand, it's always going to be focused on the people.
On the JLT team coming over, I'm curious if you can give us some insight into what the regulators looked at to force a divestiture there. Was it just combined market share? Was it something else?
Yeah, I don't think there's any question it was combined market share.
Okay.
The regulator is not seeing anything nefarious. The EU has got the ongoing review of the practices in the London marketplace. I think, in the conversations that I've had, it seemed to me that it was pretty well driven toward market share. Last one.
Thanks. I don't know if this question would be best directed to you or to Doug later. On the JLT deal, could you give us some metrics around, like what-
I'll let Doug answer that question later.
Okay.
All right. That's it.
Any others? Great. Thanks.
Thanks, Tom. Right. Next up we have Bill Ziebell. He has the next 20, 25 minutes to talk about our employee benefit and consulting brokerage operations. Bill.
I was going to take an hour, if that's all right.
Take an hour.
Good morning, everyone. Welcome to Chicago. Spring is upon us. I am Bill Ziebell. I lead our Benefits and Compensation Consulting Practice globally. We're in four countries. We have over 4,200 employees. We typically run in the mid to high 20% margin, and our organic is typically mid-single digits as well. Today, we consult with over 43,000 employers who have over 23 million employees. Our mission, if you will, our purpose is to help employers stay in business, get the talent they need to achieve their mission at a sustainable cost structure. That's universal in every country. For the individuals, the employees, we help protect their families, we help protect their income if they become disabled, pay the bills if they're sick. It's a very noble business we're in. We help people retire on time.
There's a lot of great things we do, a lot of passion we have in our business. Like Pat and Tom and Mike, I'm talking about the four pillars. Organic will be the first one. If you think about what our clients need from us, what they're looking for, things are very different these days than they were just a few years ago. For the first time, really, we have multi-generational employees for the first time, because for a very long time it was all about the baby boomers. They are starting to transition into retirement. Millennials are now the largest workforce segment, and fast on the heels of them will be Generation Y, which will be even bigger. What somebody who's 30 years old wants from an employer is absolutely different than somebody in their 50s and 60s wants from their employer.
Employers are fighting for talent every single day. We know that there's been more turnover than people have hoped for or expected, and they're fighting, trying to find ways to keep the talent they get and to get more of them. How are we going to attract those millennials? How are we going to keep the folks around? It's more than just benefits. I don't know about you, but I don't work at Gallagher just because of our benefit package. I'm here because of my career, about the people I get to work with, professional development, the fulfillment of what we do for our clients, et cetera. We have a lot of clients that are fighting for talent, and they're not sure what to do about those things.
In fact, you have to have a competitive benefit offering, but what else is going on in that conversation? For years, when I first started with Gallagher 19 years ago, we used to use some of our larger competitors' benchmarking. Data is very big in the benefits space because there's a lot of claims, there's a lot of information available. You better be using it. What is everyone else doing from plan design, things of that nature? Whether it's compensation, we do a lot of surveys in that space. We do the benefits surveys as well. We have the largest survey now in the industry. We got tired of using somebody's name when we're talking to our clients, created our own about seven years ago. It gives us a lot of insightful information. We don't just ask about plan design.
We ask about, what are your intentions the next couple of years? What are you thinking about doing, and so forth. We get a lot of great insights. That's why we know the number one priority for our respondents is attracting and retaining talent. Controlling benefit costs is still a top three. I tell you what, last few years, it's been diminishing a bit, and attracting talent's been going up because of that fight for talent. Very low unemployment in all the countries we operate. Very competitive nature for what we're trying to do out there. Give you a couple quick examples on the organic side, how we win. We had one recent win. It's a U.S. yogurt manufacturer. I'm sure you know the brand, if I were to say it. Prior to us coming along, they were placed in one of our larger competitors' private exchanges.
I think they thought it was going to be turnkey, and that was it. That was back a few years ago. In today's environment, there's a lot of demand for more information. There's no strategy coming from that advisor. They didn't get the consulting they wanted and so forth. They put out an RFP. That incumbent was also included in the process, and a few others, we ended up coming out on top. The feedback we got from our client was, "You brought the whole game. You brought the holistic approach, compensation, well-being and engagement, communications, HR benefit technology, et cetera, et cetera, analytics and so on." We ended up taking over this client and they're very happy with us now because we're actually giving them advice.
We know from last year, doing a Net Promoter Score survey of our clients, that they really like us. Industry average is about 35%. We were in the 80s. What they like about us is our strategy, our consulting, and our service. Very important. Another recent win was an aluminum manufacturer. Two out of every three cans in America are made by this company, and they were with one of our competitors that was owned by private equity. Okay? You heard Pat earlier talking about you have clear choices when you're joining a strategic buyer like Gallagher or joining private equity. You're left alone, keep doing what you're doing if you're private equity, or you get a lot more resources, a lot more changes, and so forth. This prospect of ours at the time was having some issues with solving for this problem about attracting talent.
The issue was about compensation. They have a mentality of everything has to be flat. There's no hierarchy. How are we going to reward people for the performance of the organization? It was all about the compensation. They go to their incumbent private equity-owned broker and said, "How can you help us?" Guess what? They couldn't because nothing's changed. They had no resources. Okay? I promise you, that was their biggest client. It's now ours because we went in with our resources, our capabilities, and we were solving their needs very much in real time. That's an example where we're winning because of what we've been investing in, what we're trying to build globally in our business here as well. Moving on to the merger side, why do people join us? They like our culture, they like our ethics, they like the teamwork.
They like what we're bringing to the table, and we know everyone always has a choice. Very recently, earlier this year, we just acquired a worksite enrollment company. For those of you who don't know what that is, enrollment typically works on voluntary benefit products on commissions, but they're used strategically to help communicate and improve things. Right? For example, you can get something in the mail from your employer, or you can go online and enroll for your benefits every year. You may have a lot of questions. How am I going to solve for this? What choice should I go with when I've got multiple choices with different PPOs, with HSAs and HRAs and all this stuff that's coming at people?
Enrollers actually sit down, most times, one-on-one with an employee, and they talk about what their benefit package is and make some other offerings to them. The definition of voluntary benefits is one that is paid for by the employee, but it goes through payroll deduction. Okay? It makes it easier for people to do that. It's a sizable part of our business. Voluntary products are growing rapidly, I think, in the industry. This enroller brings new capabilities to us. We had already acquired two previous, but we had some succession needs. This person's now running this whole thing. His capabilities, he's down in Alabama, brings a 200-seat call center. Let's say I don't want to have an enroller sit down, but I'm an employer, and I want my employees to be able to ask questions without swamping the HR department, because they don't have the staff.
now we make that service available at a fee, let their people call and ask questions about what should I go with, what options should I choose, my benefits. That's a big deal. I'll tell you another one. Go back to this holistic approach I'm talking about. If you think about this for a moment, and all the things that go in your head when you think about why you work where you do and why your colleagues work where you do as well. You've got your compensation, your career, you've got your benefit package, you've got your retirement plan. There's all kinds of things that go into that equation. Where's the connection on this stuff?
As an example, this enroller that we just bought has done this previously, and I really like this idea that while I'm sitting there talking to you about your core benefits, medical, life, disability, maybe some voluntary auto, homeowners or pet insurance or whatever they want to buy. By the way, let me talk to you about your 401 plan. It's a savings vehicle for you that you can put in and your company will match it up to 3%, 4%, whatever the plan design is, and you're not taking advantage of that. This is the kind of connectivity with those intricate parts of the employer offering, and we get great results from those kinds of things. This enroller recently had a very good example, back to the HSA side, 3,000-employee group that was trying to move to an HSA plan. 3,000 employees.
After year one, they had 79 employees sign up for it. Wasn't exactly fulfilling their strategy, right? This new merger partner of ours went in, started doing enrollment, and then after two years, they now have over 50% of their employees are on the HSA. That allows the employer to get the strategic movement that they wanted in their plan design, saving money for the employer, and all this was accomplished at zero cost to the employer. It's all from the commissions from the voluntary products. That's a merger example that we're help building our capabilities, solving our clients' problems, and finding the right person that wants to join us because of our ethics, because of our teamwork, because of our culture and the resources available to him as well. Moving on to productivity and quality.
You've always heard repeatedly today already about we're always looking for things of that nature. Last time we had this type of meeting, I was talking about our small business centers of excellence. Another example for you would be in the stop loss space. This is something that's really a big part of mid-market. If you're self-funded on medical, you need a stop loss carrier. It's kind of akin to what Mike was mentioning about umbrella coverage. It's to prevent the big claims from swamping your boat if you're an employer that's self-funded. It's a big part of our world.
Going back about 10 years ago, we started looking at where there might be some risk for our clients and for us, we decided that we wanted to have a very narrow group of carriers that we would call national partners because they would do the right things for our clients. They would honor their plan design if there was some kind of discrepancy with the contracts. There's a lot more peer review, a lot of things going into this whole thing. We have sizable books of business with these partners, so if there is a claim that needs to get paid, we can in fact get it done. What's going on now since the ACA came about is there's no more lifetime maximums. There's no more preventing somebody getting on your plan because they had pre-existing conditions.
What's happening in the stop loss world, there's a lot more claims going up. A lot of bigger claims than ever before. What's going to happen to premiums? It's going to go up. Now the employers are going to have to be facing choices. What are we going to do now about how much coverage we want for this type of thing? Our analytics team has developed a tool to allow us to run Monte Carlo simulations. What do you expect to see from your population, the possibilities? Data is helping make good decisions on how much coverage to go with stop loss. We're also rolling out our client service organization for health and welfare here in the U.S. We're starting that right now.
We expect to actually free up a lot more selling and consulting time, the kinds of things that our clients want more from us, more consulting, more strategy. We have a lot more we'll be doing in terms of productivity and quality here in 2019 and beyond. That will never end for us. Last, we move on to culture. I know you keep hearing it from us, it really does matter. There's a bind here that matters in how people, why they work together. Going back a few years ago, at my local town, there was a young man who played on the high school football team, and he actually scored the winning touchdown in double overtime in the state championship. Good family, good kid.
I ran into he and his father at the local public golf course and said, "What are you up to, Matt?" He goes, "I'm interviewing now. It's going into my senior year and I'm looking for a job." "What are you thinking about doing?" "Thinking about going into sales." "Huh, who are you talking to?" "One of our competitors, one of our larger competitors." I go, "The heck you are." I got the kid into our program. We're big into the internship program. Even though he was graduating, we put him into a post-graduate internship program. Now think about that. He was going to get a full-time offer, I put him in the internship program. He chose us. Just a couple of weeks ago, we had our awards meeting down in San Antonio.
I don't buy this baloney about Chicago in the winter, okay? We're down South where it's warm. The kid is one of our rookies of the year up on stage. He's been here for two years. Why does that happen? It's not because I hired him. He's a strong, dynamic, aggressive, competitive kid. Why he's up there is because all the people around him willingness to share their mentoring time with him to help him out. You don't learn how to sell $150,000, $160,000 in your second year just because you woke up one day and decided to go do it. This is a very complex business. Imagine for a minute, you're in charge of HR, and here comes this 20-something youngster telling you he's going to help you on your benefit plan. This is a huge decision. He better know what he's talking about, right?
You don't get that by osmosis. There has to be coaching and mentoring that goes along with that. That's a great example of our culture I would just share with you all. With that, I'll open up to any questions you might have. If I could come up.
Anything going on under the hood in terms of the commission rates from the carriers or fee versus commission? Just trying to understand any pricing dynamics that are changing or trends.
Not really. A few years back, during the recession and the ACA and so forth, a lot of the carriers were trying to take inflation out of the small group books of business. They went to like PEPM, as per employee per month fees as opposed to commissions. That's already been done. That's already kind of settled. We're not seeing that type of trend anywhere else, at least not what I'm seeing. There are opportunities for us to find out if we're actually getting fairly compensated. You have to also understand, this is a very transparent market, and it's also very elastic, so they're always putting us out to bid what we're going to get paid. There isn't any kind of standard commission, if you think about it.
What we're really getting good at with our analytics is looking at, okay, for 1,000 employee group, what should our fees be for core consulting on the benefit plan? More services, more fees, that kind of thing. There's a range that we look at, try to go out that route. Like Mike said, we don't care if we get paid in commissions or fees, it's the client's choice. If I quote them $150,000 and I said, "Do you want us to invoice you or you want to build it back into the product?" More times than not, they say put it back into the product. It's fully disclosed, fully transparent. The percentages as a whatever, kind of float more than you might think in terms of traditional property casualty, just because of what I'm talking about. It's more consultative than product placement.
Maybe I'll simple more in retention rates. Can you remind us where they stand and where the trend's been?
Our retention rates are mid-nineties. They have been for a while. As I mentioned, we have great relationships with our clients. We're always trying to improve that as well.
Jay Cohen from BofA Merrill, two questions. First, can you talk about the organic growth in your business versus other parts of the firm? I know you don't break it out, but just at least qualitatively. Then separately, what happens to your business in a recession? What have you seen in past recessions as an example?
The first question, our organic versus the rest of the business. They're always up and down pistons and so forth. Our business opportunities are the same as everyone else's, hiring producers, improving our capacity to grow. We have a little formula which is not rocket science. There are a lot of smart people in this room. Land, expand, and retain. Okay? How are we going to land more clients? Well, we need more producers, have active business plans going after the new prospects, focusing on vertical niches just like the property/casualty side, and so forth. Okay? We're using our thought leadership more and more in that area. We had something around $100 million of new business last year associated with one of our marketing campaigns, whether it was our thought leadership nationally or a local one that was done in a local branch.
How are we going to land more clients? Expand additional lines of coverage if you want to think about insurance. Go back to what I was saying before. We bucket our categories in three broad ones. The physical and the emotional wellbeing is what you would traditionally call medical life disability insurance. Financial wellbeing is retirement planning, life insurance, individual life, wholesale life. Then we have career wellbeing, which is where you have your HR compensation and so forth. If you look at those three circles, if you will, we only have 9% of our clients buying from more than one of those circles. Just within GBS, just within my world, we have opportunities to sell more to our clients. We're doing a lot of training.
There's a lot more focus on what we're calling CAR or client annual review meetings with our clients to really sit down with them and talk about what are you doing to attract talent? Are you seeing any issues in turnover? What about your highly compensated, et cetera. We're getting very insightful on their business. We have tools to do research on their industry, their competitors, what they're seeing and so forth. We sit down with them and talk about their business, and that allows us to have that conversation about what other things we can do for them. Then retention, we talk about mid-nineties for our retention. If we're doing all the right things and we think we're irreplaceable, and that will also improve our organic. The second question we had was recession.
Again, I'll come back and say when recessions hit, like the last one that came through, clients are pounding on us about our fees. We're the dog they like to kick. How can we reduce our fees? When we're smart, when we're good, we're able to get our competitors to pay for our pay cut. All right, I'll give you a cut, but can I pick up your 401(k) plan? Things of that nature. I think we did okay during the recession in terms of organic. I think we might have had one lower year and so forth. By and large, because of the diversity of what we're trying to build, I think we're pretty recession-proof. Now that being said, we'll see, right, if we ever get to another one. Anything else? Great. Thank you.
Thanks, Bill. We're a little bit ahead of schedule, so we're going to take a quick five-minute break and be back around 9:40. Thanks.
Again, more and more, we've negotiated our fees on that and less tied to the
All right. Everyone on the webcast, welcome back. We're going to go ahead and get started. Next up, we have Joel Cavaness, who's going to talk about our domestic wholesale brokerage operations. He's actually dialing in for those of you here in the room. Those on the webcast, it won't make any difference to you. He had a last-minute scheduling conflict, some dental surgery. Hopefully, Joel, everyone can hear you. Joel, are you there?
I am there. Thanks, Ray.
The floor is yours.
Oh, thank you. Morning, everyone. I'll spend the next 20 minutes or so giving you an overview of RPS and where we're positioned. RPS operates as an independent intermediary and distributor of specialty products, sometimes better known as a wholesale operation. Give you some ideas of our past. We started from scratch about 20 years ago. Now we have over 80 offices in the U.S., and we have about 2,700 associates that work inside of RPS. To give you an idea, we place about $3.5 billion into the marketplace in five distinct areas. We operate as a wholesale broker. We operate as an MGA. We're a binding operation. We are program specialists. We do standard lines aggregation, and we also, through Pronto, have a non-standard auto specialty.
We trade with about 13,000 independent agents and brokers in the U.S., we also trade with a lot of the larger national brokers as well as many association groups. To kind of give you some more clarity on those different businesses, on the wholesale brokerage operation, we are basically brokers who specialize in either property or casualty, healthcare, executive lines, many different specialty niche areas where we receive application submissions from our retail partners, and we go out to the open marketplace and individually negotiate terms and conditions on behalf of them for their clients, hopefully get to place the coverage on their behalf.
On the MGA binding side, it's typically smaller transactions where we actually operate as an underwriting arm of about 30 different insurance companies, where we provide almost all outsourcing for them, including risk selection and submissions, rating, quoting, binding, policy issuance, and premium income on their behalf. The only two major services that we don't provide for our underwriting partners is we don't place their reinsurance in most cases, we don't handle their claims in our traditional MGA binding sector. Our programs business is kind of based on its description. We are program managers where we have underwriting officers that specialize in particular niche or product lines. It could be workers' compensation, could be country clubs, could be public authority business, could be a large self-insured pool administration for workers' compensation.
Many different areas where we have a particular expertise where the insurance companies will outsource their underwriting and distribution to us because of the specialty niche that we're in. Our standard lines business is a little bit different in that it's not particular E&S driven. It is really more where we provide our market access or relationships to smaller independent agents, where they need the breadth of a product offering due to their client base, but they don't have the volume to support the contracts. That could be with a Chubb or an AIG or a Travelers or a Hartford, where we have large distribution group. They provide their access to us, and we allow access back to us for these blue-chip type carriers for them to provide solutions for their clients. Finally, our non-standard auto practice, which is a fairly new practice for us.
That came to us via our acquisition of the Pronto organization based in Brownsville, Texas. That's primarily a demographic of Hispanic customers that we serve. It's a grassroots marketing operation. It is more of a traditional MGU, where we do almost all services. We provide for front-end sales from Pronto branded stores, both owned stores and franchise stores. We also distribute our products via technology. We also do about 20% of our business through the independent agent channel with independent agents who specialize in our particular product offering demographic. That gives us a lot of different ways to sell our products in the states that we operate in. We operate now in California, Texas, and I'm sorry if I said Florida.
Florida, Texas, California. We recently did a merger up in the Chicagoland area, so we'll be able to provide product in a Pronto branded offering up into the Chicagoland area very shortly. In that particular business, we also do handle the claims, and we do negotiate on behalf of reinsurance with a reinsurance broker to provide the reinsurance behind the carriers that we represent. Our revenues come from many different sources. We do have diversity of growth opportunities in through commissions, through our fee income, through our supplemental commission agreements that we have with many of our major carriers. On the underwriting side, of course, we do get to share in the profit sharing when we operate profitably on our carrier's behalf.
In our space, we compete with all the traditional wholesale distribution companies including Amwins, CRC, RT Specialty, Peachtree, as well as firms like Burns & Wilcox. We also compete in our space with about 300 smaller competitors in the MGA space, which does lead for a lot of merger and acquisition pool of opportunities. Our growth really comes in two main areas, our mergers and acquisitions strategy, as well as our organic growth strategies. In the past, we've done about 18 mergers in the last four years. Our organic growth averages mid to single-digit growth. Our organic growth, moving into that, we have lots of different levers to pull when you look at our organic growth strategies. We can increase our reach within the 13,000 current clients that we have.
Of course, there are about 40,000 independents across the country, so we develop new relationships through our client relations team. We also develop and push new products every day. Every time that we get a new product or new offering, we can distribute it heavily through these 13,000 retailers that we do business with. Develop new programs. We continually look through data and analytics at the opportunity to take a bulk of premium that we do that might be homogeneous and develop new product offerings around those niches. Of course, our hiring strategies have been very aggressive over the last two years. We've been able to recruit both talented people within the production ranks, as well as develop our own.
As many of you know, through the Gallagher internship program, we've been able to build quite a team of people to grow, and some of our top producers today were interns that started with us five, 10 or 15 years ago. That's a very exciting organic growth strategy for us. Again, as I said earlier, we do have lots of levers to pull. When trucking's hot, we continue to grow and develop because that's a big growth area. Healthcare is a big growth area for us. A lot of different levers as we look down the road at developing cyber and developing new products and developing new product offerings that we can get out to our distribution for growth strategies. Moving into rate. Rate is certainly a small amount of a tailwind right now.
We faced a lot of headwinds over the course of the last five years in many different areas, and things, as you've heard on the carrier side, have started to change. The casualty side, we're seeing typically up about single digits. Property, it's going up about mid-single digits on average. There are some accounts that have had loss problems or have catastrophic exposures. California homeowners, as an example, continue to go up quite a bit. Automobile, both on the commercial and the personal side, continue to see mid-level, mid-digit increases. Professional liabilities, flat to single digit up, with the exception of a few classes like assisted living and some of those areas where you've seen some major spikes in loss development. Our retention on our business typically runs about 80% for brokerage.
It is very slightly lower for our MGA business. It is higher for both our non-standard auto and our program business. Typically, as you might expect, our retention is impacted by the fact of what we do. We typically provide a solution for difficult-to-place risks that may improve over three years. They may have more history in operating at a profit over three years, and typically those types of accounts will migrate from our market into more of a standard lines market. Our opportunity for new business is strong, both especially in a growing economy because there's more businesses being started. As business go into start, they don't have a history, they don't have any loss history to fall back on, or they don't have the management experience as like a Navarro Tavern or a restaurant.
They typically will start out in our market and then migrate over time into the standard market. It does give us a lot of opportunity for new business. Moving into our mergers and acquisition. We are very active in the mergers and acquisition area. We typically focus when it comes to M&A on MGAs and program managers, and now our newer model in the non-standard auto business. Typically on the wholesalers, not as many wholesale brokers out there today, so our strategy for growth in that sector is typically hiring, recruiting away or developing our own producers. On the M&A side, candidly, they join us for lots of different reasons. It is a business where you have to heavily invest today in technology and people and all the other areas that impact them.
Many of the larger retailers typically are culling their list of wholesalers or distributors that they're doing business with. We're a great place to join. We provide access to markets. We provide access to state-of-the-art systems. Obviously, our access to our distribution is really unmatched by any of our competitors. They join us because we have a crack marketing team that can provide for great growth through marketing. Of course, we have training programs, we have data access, and then of course finally, and probably as important as any of the ones, is really the culture that we continue to bring to our mergers and acquisitions. Moving into productivity and quality, as we look at productivity and quality, it's really our goal to get better and more efficient every day.
Through the use of our service centers of excellence, we can pretty much measure everything that we do, how we do it, and we can actually report and market around that. If we can come back and tell our customers that we deliver policies that are 99% correct every time they come out the door, that's a savings for not only us, but it's a savings for our retailer in that they don't have to request endorsements or changes because the policy came out wrong. We can measure that. We can measure both the quality of the work that we provide as well as the cost associated with delivering that product. We continue to get better at that. We're probably the best in the way that we're able to measure and show our quality. We can measure our turnaround time.
We can tell our customers that you'll get your policy within three days, et cetera. We can tell them about our quality. We can tell them about our error rates. Of course, as I said earlier, we can measure the cost associated with all of those costs of doing business. Continue to work on ways to leverage our technology. We now are using robotics. We're using comparative rating tools. Obviously, our website and our e-commerce tools provide for access from our retailers to get on there 24/7 and provide quotations, get their service, get their accounting, get all kinds of information that many of our smaller competitors can't provide. myRPS, which is a website that we have, gives access to all of our retailers to all of that information at a single point.
Again, it's another reason that people want to join us because they want to be able to provide that to the retailers, it does come at a cost. Data initiatives is front and center in our mind in one of our strategies. With access to all of our data, we're able to provide for program development, loss ratio management, and really more tools for our customers to be able to access all of our products across the country and develop new products for them. Finally, as I'm sure Pat talked about, our culture. Our culture, we feel, is our differentiator. We are an aggressive growth culture, it also provides for entrepreneurial spirit, new ideas, new ways of allowing people to do their work.
Certainly, our teamwork and our collaboration, you won't find another operation like ours where we're willing to share intelligence, help people get deals done. That was evident this past week when we had our sales and branch managers meeting where people were collaborating, talking about new ways of working together, continue to be successful and celebrate each other's success. Really, our culture does drive more acquisition opportunities. People know that we're a good place to land, that we're a good place to place the work that they've done all their lives into our hands because we are culturally oriented. Maintaining this culture is certainly top of mind every day. It's what we do, and it really does provide for a good place for people to land. We continue to win. We win a lot more than we lose.
Our speed and our quality of our work and the breadth of our product offerings is really unmatched. We can do everything from the very smallest account. We call it in personal lines. We can do everything from manufactured homes to mansions. That gives the retailers the peace of mind to know that they can come to us with their smallest account and get it done, and come to us with their largest account, and we're going to get it done. We like that. It's not just you come to us for this one-off deal every once in a while. You can come to us every day with your product needs. That kind of leads into our customer base. We do business with the smallest of agents up into the largest brokers. We are on pretty much all of the lists.
As the retailers have looked at making their list of distributors smaller, we've been able to maintain to be on all those lists, that provides us with a huge opportunity for growth for people who do fall off of that list. We maintain a top five status with all of our major carriers. We have wonderful relationships with all of them. Excuse me. Their goal is to help us win. We finalize my conversation today with everything we do is really with the thought of maintaining the highest degree of integrity that we can operate under. Everything we do is to do it the right way the first time. With that, I can open it up and answer any questions that you might have.
We have five minutes for questions.
Hey, Joel. You mentioned looking at homogeneous risks to create programs. Curious if you ever work with Mike Pesch's team in the U.S. as they've built out their specializations, if there's opportunities to create programs on the, I guess, domestic retail PC brokerage front.
Yes. We look at all of their niche products and develop new exclusive offerings for them. We've done it successfully in higher education, where we've taken their higher ed Book of business, and we've developed specialized, integrated large placements for them. In other words, we've been able to integrate a lot of various coverage under one umbrella and make an offering to their higher ed groups, so that they can buy all the coverages with one large limit. We do that all the time. We work with them and their data to try to find groups or classes of maybe especially underserved, because they already have relationships with certain carriers that do them well. There are a lot of underserved classes of business that we can group together and develop new products for them.
Anything else for Joel? All right. Well, thanks, Joel. Appreciate it.
Thanks for your time. Hope all have a great day.
Next up, we have Scott Hudson. He's going to be talking about our claims management business in the risk management segment. Scott, the next 25 minutes are yours.
Thank you, Ray. Good morning, everybody. What?
Turn it on.
Turn it on. That would help. How about that? We got her? Okay, we'll try that again. Good morning, everybody. As Ray said, I'm going to talk about Gallagher Bassett. Like everybody else, I'll do four things here, or five. I'll mention the business just to make sure we all have kind of the same starting point in terms of who Gallagher Bassett is, what we do. I'll talk about what we're doing to drive growth organically. I will mention M&A. That's becoming a little bit more of an interesting topic for Gallagher Bassett. We have done a handful of deals the last couple of years. Like others, I'll talk about productivity and quality. I'll mention the culture, and then I'll just wrap up by just a quick reminder on how we distinguish ourselves in the market. I do have here with me today our CFO, Jim Bond.
If you've got some more detailed questions, he'll help me out with those. We finished last year just north of $800 million. I think it was $806 million, to be specific. That represents just over 15% of the overall Gallagher enterprise. If you kind of put it into perspective, I always like to do it in terms of the total claim payments, which are well in excess of $10 billion across the globe. The number of claims that we're taking in in a given year is well north of 1 million new claims each year. If you thought about that as it related to an insurance carrier, we'd probably be in the neighborhood of a $15-plus billion insurance enterprise. We are a large claim operation. We don't take risk. We're strictly acting on behalf of. We're stewards of our clients' reputations, brand, and their claim handling operations.
It's all about the service we're providing. We're actually not taking specific risk. Four different types of clients. There's the one that basically was the basis of founding the organization. I refer to it as large commercial entities, risk management clients, Waste Management, Hyatt, Costco, organizations like that here in the U.S. For those guys, essentially, they've made a decision to unbundle their claim handling from the insurance carrier, and they need somebody to partner with them to deliver that service. That's what we do on their behalf. Typically working with a risk management department, maybe a general counsel, maybe an HR department, depending upon the type of claims. We do work with public sector clients as well. Large federal, state governments, municipalities.
Very prominent down, I've mentioned this before, in Australia, where we're actually an agent on behalf of a lot of the states down there who are serving essentially as the workers' compensation insurance carrier for those states. Here in the U.S., we probably have a half a dozen or more states where we're handling their claims. We have large school districts. As I said, we have municipalities. Same thing holds true in the U.K., where we work for a lot of municipalities. We have actually a couple of larger government entities over there as well. There's the alternative market group, like Joel's MGAs. That would be the type of organizations we're working with there. Oftentimes, the MGA actually has a say or can influence who the claim handling organization is. We will partner with them in putting together a claim handling unit to service their claims.
The fourth group are the insurance carriers. One that I've been talking more and more prominently about over the recent years, where large carriers are choosing to essentially outsource a portion, in a lot of cases, of their claim operation to us. A variety of reasons as to why they may not want to build one. Alternatively, it may be a little bit of a dissatisfaction with their existing operation, and they see an opportunity to kind of raise service levels by outsourcing to us. Another reason why they would come to us is a lot of times they're sitting here faced with a fairly significant technology investment they need to make. It's like, okay, is that something that they're prepared and want to do? Or is it something they can leverage us to be able to help them with?
The way we add value, it's all about handling claims to drive a better result. That's the one thing I emphasize a lot is that we're not necessarily the least expensive option. We're not trying to build the low cost claim operation. We're trying to build the operation that delivers the best claim result, both from a service standpoint as we're handling a client's employees, as we're working and engaging with their customers. It's about protecting their brand, and at the same time, making sure that the loss payment is the right amount. It's not the lowest amount, it's the right amount as it relates to that claim. The way we generate revenue, there's a couple of different models that we have. There's the longstanding per claim. Two flavors of that. It can be per claim for the life of our contract with an entity.
It can be per claim for the life of that claim. We're essentially pricing that service as a claim fee that varies depending upon the complexity and type of claim itself. Alternatively, especially in our captive business, what we will do is price it on a percent of premium. There's not as much of that, but that gives them a degree of, I wouldn't say it's not a fixed cost, but it's predictable cost in terms of percent of premium. The third way is with a lot of our clients, larger clients, a lot of our carriers, essentially they're buying a team. We will put together a team, then there'll be some sort of multiplier placed on top of that, where we make our margin.
Just to put those into context, we've got teams with clients that are approaching 100 people on some of our large commercial clients, probably in excess of 100, 80, 90, 100, 120 people. Some of the carriers, it's actually in excess of that. You may be talking hundreds of people. You can picture, in some cases, they're in the same place. In some cases, they're scattered a little bit throughout the U.S. Competition varies a little bit by where we're playing. Here in the U.S., there's a number of well-known organizations, Sedgwick, Broadspire, Crawford, York. You get down a little bit smaller with CorVel, CCMSI. Inside the carriers, you got Helmsman, Constitution States. There's a reasonably well-defined competitor set here in the U.S. If you go over to the U.K., it's much less defined. There aren't as many large, prominent third-party claims administrators over there.
Law firms are in the business. In some cases, carriers are in the business. There are a few smallish TPAs. Broadspire and Sedgwick play over there. The other companies that I mentioned here in the U.S., they do not have a presence really outside the U.S. You go down under to Australia, New Zealand, a different competitor set. We're actually, I would say, probably far and away the strongest down there. We actually compete directly with the carriers. The carriers, different than in the U.S., they actually have claim operations that sell their services on a third-party basis. There is a TPA or two down there, but they're not quite as prominent. Same thing is true within New Zealand. The number of employees we got, you can round it up, we'll say 6,000 employees and growing. Our organic has been in the mid-single digits over the last handful of years.
Margin is in the 17%-17.5% range. Last year, I think we ended at 17.4%. That's an area where we continue to, I think, be relatively strong in comparison to our competition. We have done some acquisitions, and I'll talk about those in a minute. As I said, that has been an area that's seen a little bit of uptick. In terms of growing the business and how we think about where we're growing, I'll mention four or five things here. Obviously, one of the things we want to do is go where the tide's rising. I mentioned the segments in terms of the risk management segment, carriers, captives. The captive and the carrier segment are probably the strongest for us. There's a couple reasons for that. I think the opportunity inside the carrier segment is just endless. It's relatively immature.
The market's just being defined. That opportunity exists in all the markets we operate. It's not just here in the U.S. We have significant carrier relationships down in Australia, and we're starting to get out of the gate in a pretty meaningful way in the U.K. as well. The captive business has been a pretty significant growth area for us as well. A little bit of the challenge there just aren't as many of those entities. We have relationships with the Captive Resources. We have relationships with Artex here inside the Gallagher organization, and both of those have seen significant growth in their membership. It's just finding the next Artex or the next Captive Resources. There just aren't as many of those type of organization managing group captives.
Whereas the captives themselves are growing organically, which is a huge plus for us, and some of those organizations are opening and starting up new captives, just the upside potential is a little bit limited. The risk management space for us is, as I've mentioned over the last couple of years, it's a dog fight every day. It's a fairly mature marketplace. There isn't a new McDonald's, there isn't a new Hyatt Corporation being opened up that we can go chase. It's trying to kind of prove yourself day in and day out against our competition. It's a challenge from a pricing standpoint. Being a mature market, what we're finding is, they're very anxious working in conjunction with their broker partners to make sure they're getting a good deal.
The growth is steady, but not quite as significant as it is on the carrier side. Product expansion. We were, not that long ago, kind of known as a work comp player, and a little bit of general liability. We've significantly expanded our product offering. In a meaningful way, we've gotten into the specialty marketplace. Some more complex liability lines. We've got a nice presence in medical malpractice. We're building a products liability business. We're getting into the specialty trucking space. That is an area where I think we'll continue to see growth. Those products apply, whether it's a carrier, whether it's a risk management client or in our captive segment. They apply across all of those. We made an acquisition of WCD last year, so we're getting into the environmental health and safety space in a meaningful way.
It's not all about handling claims. To some extent, it's creating the environment where maybe less claims happen. I think the potential there is quite significant as we look forward into the years ahead. There is an opportunity to expand geographically. We haven't done a lot of that recently. I think we're still keen on finding opportunities outside the markets that we work in at the moment, whether it's an acquisition or making inroads into those markets. We're committed to being a global player. It's just at this moment, probably over the last couple of years, we haven't planted a new flag in a while. New Zealand was probably our most recent push. I would expect in the not-too-distant future, we will probably likely be doing that as well.
The other thing that really drives our growth, which is kind of the cornerstone of the whole story, is all about delivering a better claim result. I mentioned this kind of in the introductory comments. We're positioning ourselves as you're going to get a better claim solution and a better claim result. That's the value we bring. That, I think, is the story that ultimately will kind of carry the day in the business that we're in, and we would expect that'll be a significant driver of growth. Retention. I'll just remind you, as I said, growth has been in the mid to high single digits over the recent years. We're still looking at that being the case as we go forward. Retention rates kind of across the book, in all geographies is in the kind of mid-90s range.
It's actually probably a little bit higher, maybe in Australia or New Zealand, maybe even in the U.K. Maybe not quite as challenging competitive markets, but we're still relatively strong kind of across the book. M&A, I mentioned that there has been more activity than there probably was a few years ago or in the past for GB. We did do three deals in 2017, we did four in 2018, I see no reason to think that it won't be that or a few more as we go forward. Our focus is not volume. I mentioned geographic expansion as a possibility, it's more about building capabilities, whether it's environmental health and safety capabilities, whether it's getting into some of the specialty lines that I referred to. It's all about building expertise that rounds out the sort of things that we can do for the client organizations.
Two that I mentioned or that I will mention, WCD, it's a specialist risk management firm focusing on environmental risks. The company's expertise is primarily in the construction and real estate sectors. That has put us on the map in a pretty significant way. Their focus has been primarily the Northeast U.S. Our expectation is that that will be replicated across the entire U.S. marketplace in hopefully relatively short order. We also bought a trucking specialty firm, National Transportation Adjusters, just to give you a flavor of the sort of things we're keen on finding. Keith and his team, I think are known kind of across the trucking industry as when it comes to liability in the trucking space, Keith and his team are the guys you go to.
It's not just about processing large volumes of claims, it's about looking for the expert when things that happen that are detrimental to the enterprise. You've got significant accidents, you've got spills, you've got various things going on that could be an issue from a reputational standpoint, and just the exposure itself is quite significant. Those are the sort of people we want to be able to bring into our client organizations. We actually did make a purchase in the U.K. in December, a company by the name of Hardiman Property Repair Services. Where the opportunity presents itself, we will integrate vertically, so that we're able to do more of the end-to-end servicing of the claim. It's not just about the desk work and the administrative work, it's about putting whoever that individual or business was back to the position that they were before the incident happened.
That's it on the M&A front. Productivity and quality. I've mentioned our target in terms of margins is between 17%-17.5%, and we are making investments in the business to make sure that that remains the case. At the same time, kind of countering that or making the investments in the business to make sure we can deliver a superior outcome. Both of those are happening. Scale and efficiency. Every day, we're knitting our businesses, our different geographies together in ways that will provide us scale advantages. A recent example is, probably in the past, we may have built a claim intake center in the different geographies. Now we're seeing opportunities where you can actually do that once and take advantage of some of the service center capabilities that we have throughout the Gallagher organization. A couple of weeks ago, I was in India.
GB has about 600 people in Pune right now. We expect that number to grow. We've also got a significant presence in the service center that's built in Las Vegas. Every day our team, as we're sitting here kind of architecting the business model going forward, is always asking the question, is that something that should be inside Gallagher Bassett in one of our service operations? Is that something that should be located in a centralized service center, maybe in Las Vegas? We also have one in Glasgow for a lot of our accounting operations. We've got lots of ways in terms of which we can deploy people to deliver our overall service to the clients. Global integration. One of the things that Russ Pass and our technology team are working on is we're getting closer and closer to having a single platform.
We're thinking about a liability claim, we want to be handling that liability claim on a single system, no matter where we are in the world. That is something that we've done. We've made great strides on that front. As we're building things like our analytics workbench, LUMINOS, it's being used and deployed throughout the world. I think one of the things that's becoming a hallmark of our organization is our position, our leadership position, as it relates to technology and analytics. I could go on and on about this, the decision support tools that we're putting in place, clinical guidance, as an example. That's an award-winning tool. We're looking at ways to try to improve the productivity of the adjusters through technology. I talk about insights to our risk management clients and our carrier clients with LUMINOS.
You will see here in the next 30 days, LUMINOS was far and away the best RMIS tool within the TPA space. I think fairly shortly, you're going to find out it's the best RMIS tool in the insurance marketplace. We've made significant investments in that, and it's being recognized as such. We're doing a lot of things that relates to our managed care product. Being in the work comp space, you got to be a leader on the managed care side, whether it's our IME capabilities, nurse utilization review capability we put in place in the Philippines. We're constantly bringing to and adding to our complement of nurses inside GB. A lot of interesting things under the banner of GB Care. You're going to hear more and more about what we're doing on the litigation front.
We've got some products out there as it relates to managing litigation costs that are quite exciting. We actually started in the last year. We're actually selling to law firms a scorecard of their performance as it relates to handling workers' compensation and liability claims. Interesting concept. They're looking to us to give them guidance on something that they don't necessarily have their arms around at the moment. Then we have mobile technology, GB GO. There's many of our, whether it's claimants, whether it's client organizations, that you got to have the stuff in the palm of your hand at this stage. Couple other things real quick on the productivity and quality side. One is how we're organized. I've mentioned in the past, we have a dedicated operation for our carrier business, dedicated operation for our captive business. We don't commingle those with our management clients.
It's important that we build a separate operating model for each of those. Then lastly, what is front and center for us every day is security and data protection. Our team, both technology-wise and our legal people, are keeping us out in front where we need to be. It's a big deal for us. That's something that we could wake up if we didn't have the fortress that we had around the way we operate, the strength of the technology environment. We got to be careful. We've got our hands on data that needs to be protected in a pretty significant way. Culture, don't need to say a lot about that. You've heard a lot about the culture. Gallagher Bassett is no different. We do have a unique culture. It does enable us to attract people into all of our geographies.
It is something that we do protect and take care of every day. We'd actually had the top intern program in the insurance industry, GB did in Australia. We got recognized as being a leader around handling mental health claims. We've got a new set of concussion-related services. This idea of innovation, taking care of people, and protecting the culture in a way that continues to allow us to differentiate ourselves will always remain front and center. I'll conclude with just a quick reminder on how we are differentiating ourselves in the market. I've talked a couple of times here about superior claim outcomes. We don't view ourselves as expensive, but it's not about being the low cost. It's about delivering the best result and getting paid for doing so.
We are able to, and will always be able to, customize our solution to the needs of a specific client, whether it's a carrier who wants to distinguish themselves and white label our product, so that they look different in the market, we can do that. Whether it's a risk management client who says, "This is how I want it to be handled because this is the way we take care of our employees," or, "This is the way I want to take care of the customer who walked into my place and had a slip," we are able to do that. We will need to be able to do that well into the future. We've got a global presence. We can handle claims throughout the world. That makes a difference.
There's a couple of our competitors that are getting very close or can do that, but there's only probably three of us throughout the world that are in a position to be able to do that. Lastly, I'll mention the relationship with Gallagher. Interestingly, it's become more and more of a big positive because as we're moving into the carrier and the captive space, the relationship we have with the Gallagher organization is a huge plus. Whereas the other part of our business on the risk management side, where probably 80-plus% of it comes from other brokers, that can always be a little bit of a challenge for us. With that, Ray, we'll turn it over for questions.
Thank you. You mentioned that carriers are.
Yes.
a big or endless opportunity, I think is the word you used. What changed in that world to make it such a big opportunity today as opposed to whatever, five, 10-
10 years ago?
Yeah.
A couple things. One is we actually made a conscious decision. I had a conversation before I showed up here with Pat Gallagher and said, "There's a big opportunity there. We shouldn't confine ourselves to the risk management clients." One was a conscious decision to go after that segment of the market. In order to do that, we actually had to build an operation dedicated to their needs. Our carrier client service business is different than what it takes to service McDonald's. Yes, there's a work comp claim underlying the business, but how we interface with them, how we interact with their different parts of their organization. It was a willingness on our part to make that investment.
I think the other thing, and I would say we've been out there helping drive it, is just as we present the opportunities to executives inside carriers, it's just opening up their minds to the possibilities that, you know what, maybe there is an alternative. I would say we are at the very early stages. Is it going to be for every carrier? Do some of them want their own claim operation? Absolutely. I think it probably comes down to a commitment to the market segment, a willingness to build an operation that will service their needs, and it's going out and letting the carriers know that we're a legitimate alternative as they think about if they want to get into a new line of business. You know what? You don't have to stand up a claim operation. Give us a call.
If you are struggling in terms of being able to provide the service that your clients want, at least consider us as a possibility. Technology investments. You think about all the things that are going on as it relates to artificial intelligence and so on and so forth. Do you want to, as a carrier, make the investments to build it? I would argue that probably the hardest thing to do inside a carrier is to build a claim operation.
Is there, do you think, a kind of breakpoint size-wise for carriers that some just aren't big enough to have the-
Sure
sufficient infrastructure to leverage size?
We'll have a conversation. If you're a small carrier based in Kansas City, Missouri, and you've got a claim operation of 200 people, think about it from the people side, the ability to provide career path opportunities for those people, to attract and retain those people. That's not easy if you're in a sub-scale claim operation. As I said, we got 6,000 people. We're doing training, developing those people. From a career standpoint, it's compelling, I think. There's a whole bunch of different reasons. I think small carriers is an example of one. I think large carriers wanting to get into new businesses. I think large carriers that are struggling with making the necessary technology investments. A lot of interesting reasons as to why the opportunity is there.
You mentioned pricing was challenging.
Yeah.
Would you say competition has picked up year-over-year? I guess when we think about the margin outlook for your business, it's kind of flattish despite great organic growth.
I'm curious if it's more so coming from pricing competition or all these other investments you're making for the future.
It's both. I would say we've got a couple of wounded competitors in our space. Jim is in charge of our pricing unit. It seems like on every one of these deals, there's somebody who's willing to cut the price by 20, 30, 40%. Now, we're not going to chase that. It does create downward pressure for us. In our risk management space, which even though we're seeing significant growth on the carrier side, the risk management piece of our business is still the largest. The larger risk management clients, pricing is a significant contributor to some of the inability to maybe expand the margin. We are making investments, though. When I talk about the carrier business, a whole new operating model, I talk about the captive business, a new operating model, things that we didn't have five to 10 years ago.
You think about what we're doing on the technology side, whether it's a mobile platform, and being able to integrate with carrier systems, and the pipes that we need to build with respect to that. You think about decision support, and some of the things I've talked about. There is, at this stage of the game, for us to continue to kind of keep pace as well as kind of push out in front of the competition, there's significant investments there as well. It's probably the combination of those two things. The thing that Doug and Pat will always, I think, remind you guys of as well is we're still at a stage when we get a new claim, I got to put a person on it. I got to have somebody handling the claim.
Right now, really very few of any of the claims we handle, they're not fully automated. You read every day about the fact that claims can be handled without humans. That's not really the business that we're in. Some of them are simpler, if we're going to get a new client, we got 100 new claims coming in, I do have to hire somebody to do that. Over time, they'll probably be on the lower end, the less complex claims. We'll see opportunities to get more efficient there as well, though.
Thanks. Sort of following on that I know there's intense technology expenditures and investments going on, as you continue to grow and add to the scale, can you envision a scenario maybe in the intermediate future where we might see the margins start to expand or creep up a little from where they are?
Absolutely. I think we can envision longer term. I'm not sure I can pinpoint exactly when. A couple other things, just to shed a little light on a couple other parts of the business. I mentioned the specialty stuff. We're never going to see the volumes around the specialty claims, the fact is we get paid better, and they're more of a value buy. When we're handling a $200 or $300 million claim side by side in the med mal space with our clients, they're not as preoccupied with trying to get the best per claim fee on that. As the specialty business grows, and we're still in the very early stages of that would be, I think, an opportunity for us to envision a little bit of expansion on the margin. That will take time.
As some of the investments that we're making on the technology side start to mature a little bit, that will help us as well. I'd like to see a little bit of relief in the market. Maybe some of these guys that are giving away the claim service, maybe they'll lighten up a little bit, and that could help us as well.
Curious what you're seeing on workers' comp loss trends. Are you seeing an acceleration versus last year? Thanks.
Loss trends. There's frequency. Frequency hasn't really changed a whole bunch. We look at just the volume of claims coming into us. We monitor that. Now, that has been going up to kind of coincide with the growth of our business. If you look at the loss trend itself, and Jim, help me out here. We haven't seen really any sort of slowdown on the medical side, which is really what's driving the growth, the cost of the medical. Our managed care services, and the purchasing of those to handle the claims has continued to drive significant growth. There's very little slowdown there. There are things that are being done constantly in terms of driving quicker return to work. We're working on those things. I wouldn't say that at the moment, we're seeing any evidence where the loss experience is changing significantly.
Anything else for Scott? All right. Thanks, Scott.
Thanks, guys.
Next up, we have Doug Howell, CFO, spend the next 30 minutes or so with talking about financials, probably hit on the CFO Commentary, maybe some Q&A on clean energy. Doug, the next 25 minutes are yours.
All right. Am I on? Yep, sounds like it. Good morning, everyone. Thanks for making the trip to sunny Chicago. Last time we saw the sun probably was when you were here last in October. I appreciate it for coming in. Today, actually, hopefully what you've got is a flavor for those that are new to Gallagher. What you've heard today is very similar to what we've been talking about for the last five years. Each of the leaders that have spoken about the business, their story's about the same today as it was five years ago, a year ago. Today, I would say today might be a little bit of a boring day, but I would take that as a positive because I think we're in a pretty good spot right now in terms.
We had a great 2018, and I think we feel pretty good about 2019 coming in and at least matching that or doing better. Today, I want to make sure I leave time for questions, but I do want to point out a couple administrative items on the CFO Commentary just to remind you of a few things. Maybe using the CFO Commentary, page two, I just want to highlight a reminder that our first quarter has the largest minority interest in it. As you're building your models, make sure we've given guidance that we think that the minority interest that we won't get credit for in EPS is about $7 million-$10 million. As I sit today, maybe closer to eight, nine, or 10 than seven, but maybe on the upper end of that.
I just want to make sure I pulled out the statistics that over the last 10 years, going back to 2009, our first quarter organic, in looks like about eight of those years, has been the smallest organic of our year in terms of organic growth. I just want to make sure you're reminded that we are seasonal to a certain extent in Gallagher, even with the new accounting that's come in. We still do have seasonal matters, and that usually arises because we're so big in higher ed and not-for-profit that tend to have July 1st or October 1st renewals. Just as a reminder as you build the models on that. Other items I want to make sure that we highlight, when we get into the corporate segment, if you recall, we had a couple one-time items.
This would be on page three. Not necessarily for the first quarter, but for the fourth quarter. Just make sure you're comparing it to our adjusted results. You'll see that on page three. The only other real change on page three from what we provided to you on January 31st is that we did tweak up the amount that we are spending on M&A
On M&A transactions, you'll see that in the kind of pinkish segment, third row from the top. We're up about $1 million. That's just because of the JLT transaction and because of the Stackhouse transaction that we're closing. Those are external fees that we pay to bring those operations on board. Our look for clean energy going forward. Recall that coal-fired electricity tends to be greater during the summer months because all air conditioners run on electricity. During the winter months, many heaters run on natural gas. If you think about consumer use of electricity tends to be higher in the summer months, hotter periods than it does in colder. I had somebody ask me a question, gee, with all the cold, the vortexes that were coming through, does that mean that there's more energy, more electricity being produced? Not really.
It has more to do with, unless it hits the south, where you have baseboard heating. Right now, I'm not in a position to change our outlook on what we think clean energy will deliver for us. We're still in that $105 million-$115 million range of after-tax earnings going forward. We haven't modified that. Finally on page five, as we look at rollover of our roll-in of acquisition revenues, take a look at the table in that as you do your models. We also have reduced the roll-in in the first, second, and third quarters a little bit because we did sell off a small business. These numbers are net of the divestiture. If you recall, we sold our TripMate business in January, that's in the net rollover revenue table there.
Those are the highlights that I had on the CFO Commentary, but basically in line with what we told you almost on every number that we told you on January 31st. Did I miss anything, Ray, on that? All right, great. With first quarter organic discussed, the CFO Commentary discussed, I want to make sure that I go around the world. I think what you heard from everybody is that we're getting a little bit of a lift from rate increases. Right now we're not seeing any places around the world that rates are really stepping backwards in any meaningful term. Pat called it a stable market. We are getting about a point of organic lift as a result of rates and exposure growth. That would be consistent with last year. As we look into 2019, how do I feel about the year?
I still feel that we're somewhere in that 5% organic range, and I think we'll see margin expansion on that, maybe similar to what we saw in 2018. Risk management, probably a little bit better organic, and we'll be in the 17%-17.5% margin space. I think when Scott answered the question, I think that we really are seeing some amazing opportunities arise in the risk management space because of the investments that we have been making in that. When Scott came into that business five years ago, admittedly, there probably was some deferred maintenance in it. Like he said, he does see margin expansion going forward in that business in the intermediate term here. That's still industry-leading margins when you look at that space, just the nature of that business.
When I look at the health of the franchise round, when I look at where margins are good, if you recall, going back in the story, there were three pockets that we were really working on margins. Australia Retail, U.K. Retail, and U.K. Underwriting. Australia Retail has actually gotten their margins up above 25% now. That margin story is more of continuous improvement at this point. U.K. Retail is somewhere, let's say, just a little bit south of 25%, so they've made a nice step up from when they were around 19% or 20% there. There's an opportunity in that space maybe for another three or four points of margin. Especially as they start to use more of our offshore centers of excellence, you'll see some margin lift there. I've got to hand it to our wholesale business in the U.K. on that.
It's about an $80 million business. That's not the specialty London business, but our wholesale business, they're in the mid-teens when it comes to margins at this point, and we see opportunity there. They've made the investments in the systems and the management information they need. We'll see a margin improvement story there. Around the world, as I look at the pie of all the different revenues around the world and the margins, I think that we're in pretty good shape, and we're at a margin level that I still believe with growth and scale, we can expand, but we don't really have any real turnaround-type stories inside of the organization at this point.
When I look at M&A, pricing multiples are tough when it gets into larger deals, but on the smaller mergers that we continue to click off, we're still seeing those in that 8 to 8.5 times range. Generally, by the time they get through the earn-out, the multiple actually comes down too. If you express it at the end of an earn-out period, we actually are paying less than 8.5 times or 8 to 8.5 times. Large acquisitions, there's natural curiosity about that. We've danced with some larger ones, primarily PE-backed roll-ups, that we have a hard time getting across the line because of the price.
Also, when we really look at these organizations, we have to take a really hard look to find out why didn't you sell to us in the first place when you could have three or four years ago, why are you going to be happy with us today? I think that's an important thing to understand is that I would rather pick every single branch going forward because we got to make a decision about whether we want to be together for the rest of our lives, one at a time. If you go in and buy a larger acquisition that's been a roll-up, let's say of brokers, if there's 60 of them in the shop, 60 branches in the shop in that organization, we might really like 20. 20 we might be saying, "Okay, fine." 20 we might say we don't have any interest in.
More importantly, why didn't all 60 of them sell to us in the first place? Why didn't they join Gallagher in the first place? That's actually kind of a cultural litmus test in my mind as a CFO, is that if you don't want to be better together, if you don't want to use our capabilities, our resources, be on our systems, be working together. If you don't want to be on our Jabber, if you don't want to be part of SmartMarket, if you don't want to be part of these things. If that didn't excite you four years ago, I don't know why it excites you today, unless you've realized that that's a competitive advantage. It's hard to get that understanding from 60 branches that we don't really have much contact with.
Gallagher right now is in the business of buying smaller partners that are interested in our capabilities and our resources and being better together. I don't see that changing. There'll be an opportunity if there's a roll-up in a certain little area where maybe we didn't have a strong leader at the time. Okay, fine. They didn't want to sell to Gallagher because the leader at the time wasn't the person they wanted to hitch their star with. I suppose it would be like a recruit saying, "I don't want to play for a basketball program because the coach was a year away from retiring." Okay, fair enough. That might be a rational reason in that area that we could do a 10, 15 branch type acquisition. Right now, I like picking and choosing each of those that want to be with us.
To that point, I want to make sure we hit on it because there was a question earlier about the aviation team joining us from JLT. That's a terrific opportunity for us. I think it's a nice compliment that that team actually vocalized that Gallagher would be the right home for them after the merger of Marsh and JLT. That was how it started. The call came into Gallagher and said, "Would you be interested in this team of 250 people on the aviation team?" We said, "Yeah, we absolutely would be." We know that business. We're in it. Not in a big way, but we're in it, so we get it. We know a lot of those folks.
There's only 160 people in London, and London is a very small community, probably have been socializing with those folks at industry trade events for a long time. It was an asset purchase for us, a lot of the issues that would typically go into a due diligence of an acquisition. It's got about $85 million worth of revenue in it, GBP 70 million, something like that. I think that it made it an easy transaction for us to get excited about and bring on board. I think it's actually a testament to Gallagher's culture, to our capabilities, and also, remember, it has to pass muster with the EU also because they want to make sure that that team goes to an organization that has the scale and capabilities to still have a competitive market after the transaction.
From my standpoint, that was a really, really nice endorsement of what we've been doing as a turnaround in London and where we are there. Stackhouse Poland is another example of a little bit larger transaction that we did in London. We recognized that we weren't particularly strong in high net worth family office business in certain areas in the U.K. It also brought a geographic footprint to the south of England that helped us. That was something as an acquisition we were very interested in. There was also an important aspect, is that management still owned 50% plus or minus of the company, what you had is you had owner sellers that actually were tagging along a PE firm on that one. That was something that was built one brick at a time. There's some nice little tuck-in acquisitions there that we've done.
Those are kind of the two larger transactions that have hit our books here in the first quarter. By and large, we've got about $400 million in the bank aside from the Stackhouse. We've got that money earmarked for that. We've got another $400 million in the bank. We have more borrowing capacity for the year. Our pipeline is pretty full. Could there be a possibility of later in the year that it's so big that we might have to issue a small amount of stock? We might, but we would never dilute, and it wouldn't be anything that's of significance. I'm talking $100, $200 million worth of stock, something like that. I'm not saying we are. We'll see what happens, we want to make sure that we also stay within our line and stay within our borrowing capacity. Acquisitions feel good.
Culture feels good. I think there's good productivity and quality improvement initiatives going on. Pat's talked a lot about the organic prospects that are out there on a lot of fronts. As CFO, I sit in a pretty good position that the only real thing that kind of gnaws on me a little bit is inflation. There is inflation in some of the wage components. I think that we still have the opportunity to shift a substantial amount of work into lower cost labor locations, so that helps us. The work that we've done over the last decade to build a 4,000-person strong operation in India, Philippines, Las Vegas helps us control the cost of natural wage inflation as we have the opportunity to place. Equal amount of hands on the work, just in different locations.
Technology investments that we've done over time have allowed us to. We had 14 offices shut down during some of the hurricanes that came ashore, and that phone can ring someplace else. The client service person can service that from Des Moines, Iowa, not Miami or Houston or one of the Gulf states. All that investments helps us stall some of the growth in wage inflation that you would naturally see if you didn't have those safety valves. Technology costs are there, are protecting and hardening our environment are costs that are ahead of us. Real estate renewals, you don't get the lift that you had during the Great Recession. There is inflation in real estate renewals, but we are getting much better at hoteling work from home.
We believe the natural inflation that's seen in the real estate bucket or real estate expense line can be offset by more creative ways to use space than to work from home, again, as technology enables people to work from almost anywhere, as you all are typing on your computers right now. I'm paying for your desk right now. Get out. No. Anyway, that's kind of my overview. One other questions, let's move to Q&A now because I know you. David, you.
You mentioned that you already have 4,000 people in low-cost areas. You include Las Vegas as well, I think-
Yeah, Vegas might be a couple hundred of that at this point.
Okay. Mostly Philippines and India.
Mostly India, yeah.
Are you just moving more of the same functions to India or are there new functions because of new technologies or more skills in India that you can move to India that you couldn't move five years ago?
Both. Not only as we add an acquisition in, think about it, if we acquire somebody, all the work, the certificates, policy issuance, loss run stratification, orphan bill on Gallagher Bassett side, as we acquire those organizations, the rack of services that we offer there are plug and play. They can use them almost immediately as soon as they come up on our agency management system, which takes about six months. As you grow, you can displace work. As for new offerings, every day we learn something more that we can do that. Interestingly enough, I think that we have more CPCU candidates in India right now than we do in combination anywhere else in the world. As we do that, the knowledge level, we don't do voice necessarily in India. We don't do basic data input type transaction. This is a knowledge-based operation.
As a result of that, as somebody that comes in and they first might do name and address verification, they learn, and they do coverage checks. The next thing you know, they can actually start doing actuarial modeling. Compliance is a big push for us right now as an example of a product. Just the burden that comes onto an organization of having to verify compliance, and we can build an entire legal department in India, and we're in the process of doing that, to displace a lot of the compliance checks and the supervisory checks. As the knowledge level increases there, we have the opportunity to take a bigger bite at what would be considered more judgment versus process type positions. In answer to your question, David, both. Where do I see that going? I know I'm at 27% in Mike Pesch's unit.
I know that Joel Cavaness's unit is at 22%. I know that the U.K. is at 13%. This is the percentage of their workforce that is in India or in one of the service centers. I know that Gallagher Bassett is at 5%. I know that Scott Hudson talked about it. I know that Australia and New Zealand are at about 7%, and I know that U.K. retail is at 13%. Corporate actually has a large piece of the work there, but I know that there's much opportunity. As I look at those numbers, let's say our goal was to get to 25% of our hands are in India. That gives us an opportunity on those areas to continue to push work into India. Then once you get to 25, when we got to 20% with Mike Pesch's unit, we said, "Boy, we've got it.
This is it." Now we're at 27%. Why couldn't it be 35%? Why couldn't it be 40%? Also what that really does for it creates standardization. We have them there, and now the work that we're doing with robotics, with AI, we do it there. Many of the things that are going on in Insurtech are really service tech. Those service tech platforms we can use in India very quickly. Machine learning, machine reading, standardization. We actually built a lot of those tools ourselves since we started in 2005. I'll tell you, some of the stuff that's in the market right now that's considered to be robotics, it's nothing more than a macro in a Microsoft Office suite, and we already do it there. This lets us control the wage.
As jobs become more skill-based in India, we have the ability to displace those folks with technology. There's just the natural turnover there. We have about 20% turnover in those ranks, which actually is pretty low because we're more of a knowledge base, but that lets us automate when we get it there. Our strategy is don't automate it here, automate it there. Let the innovative folks, our innovative partners in India do that. Remember, these are our folks. We don't outsource, we offshore. As our U.K. folks remind me, we are an offshore unit of them. There's lots of opportunities for us, and that's where we monitor the 1,000 insurtech investments. That's where we really look at. That's our incubator of innovation is what's happening in India.
Thanks. Maybe to follow on with a question on margins then a couple on M&A. On the margin front, sounds like the turnaround story has kind of run its course at this point. You're worried about a little bit of wage inflation and real estate inflation, but you have some offsets there. How are you thinking about margin improvement, let's say, with a 5% organic growth number this year, and would you expect that margin improvement to slow o ver time.
Yeah. Let me dimension margin. First, you've heard me say this forever, three points, pretty hard to expand margin unless you had it forever. If you gave us 3% organic growth every year and you could guarantee that, we'd have margin expansion. I believe there's an investment wave that has been going on inside of Gallagher, that just because of scale, that percentage of revenues will likely diminish a little bit. Just because if we're trying to build a robotics application, it doesn't matter whether you do it on 10 pieces of information or 1 million pieces of information. By definition, to develop that technology, the cost to do that, there should be scale advantages to do that. When you get to 4% organic growth, without additional investment, maybe you should be able to see 25-40 basis points of margin expansion.
When you get to 5% organic growth without additional investments, this is an organization that should have a point of margin expansion mathematically. We are investing in the business. You've heard people talk. Right now, just quietly doing it, we're now spending about $50 million on marketing that wasn't in our numbers three or four years ago. Our branding, our marketing, our awareness. Things happen. If you think about it, on $5 billion, that's probably cost us about a point of margin expansion over the last five years, right? When you look at the amount that we're spending on cyber. To harden our environment, we're probably spending $25 million a year to make sure that we are well-fortressed against the cyberattack. That wasn't in the books five years ago. You go through, and you look at data.
Right now, SmartMarket, yes, it's more than paying for itself, the amount of money we're spending on data, when you add it all up, we're probably spending about three points of margin in our books between interns, CORE360, Gallagher Better Works, marketing. There's a layer of spend. I don't think those have to inflate at the same rate as what they have as they've come into our books. Over time, if you go back five years ago, I think our margins are up, what, 300 basis points since five years ago, I'm guessing here from recollection. In the meantime, we've had nice growth, we've also reinvested in the business. Where are we going to be at five points?
I think that if we have five points of margin expansion, you're going to see probably five points of organic, you'll probably have 40 to 50 basis points of margin expansion for the year. That's what it kind of feels like at this point. I think that we have skills to hopefully get more scale so that next time, maybe if there's another year of 5%, maybe it can be more like 70 or 80 basis points of margin expansion. The next year of 5%, maybe we can get to that full margin point if you have things. I don't think cyber's going to get any more scary. Branding's going to be there, I think we've done a good job of decoding that at this point, I don't see that as a big load.
I'd like to have more interns in the business. I think we need more boots on the ground, I'd love to have an internship that was 1,000 kids a summer versus 500. Come on, you pay them $15 an hour and it doesn't cost you that much to get a pipeline of people to come in. In answer to your question, it's not just what could it be, what are the offsets to it? The amount of investment that's going on inside of the business right now is really exciting for me.
Thanks. A couple of quick follow-ups on M&A. Were the Stackhouse and JLT deals contemplated when you upped your M&A guidance for the year to one and a half billion?
I think probably Stackhouse, probably not JLT. The way we budget is our units budget with no expectation of unknown acquisitions. When we translate the budget into a capital plan, we say, "We've got about this amount, $1.5 billion that we can spend on acquisitions this year." Assume you're going to pay about 8.5x for it. What kind of EBITDA can you buy from that? You're going to put debt on in part of that transaction. Was it specifically contemplated? Was the JLT transaction specifically contemplated? No. There was an assumption that we kind of know what the pipeline is, and we got to fill it up with another $700 million that are going to pop up sometime in the first quarter that will close by the end of the year.
What I would say this year, our acquisition activity in the first quarter will be dramatically higher than it has been probably ever in the history of Gallagher. Notoriously, first quarter acquisition activity is the lowest. If you go back, for those that have been around for a long time, you know that organic's less in the first quarter, and the amount of deals that we announce in the first quarter has always been our smallest quarter. This quarter, I think our first quarter might be our biggest. Whether they'll close in the first quarter is a whole different discussion, sign deals in the first quarter.
Okay. Finally, the $100 million to $200 million of potential share issuance, is that part of the billion and a half? Or is that if you exceed a billion and a half?
That's right above the $ billion and a half.
Okay.
Gee, when we're talking about a couple, three million shares, something like that. Remember, a lot of that comes when we try to buy back. When somebody wants our stock, we'll give it to them, we typically try to go out in the market and buy it back. It's effectively, to them, a stock transaction. To us, it's a cash transaction, net-net. Because they may want it for tax purposes. You get to do a tax-free exchange. You can hold the shares and defer the gain until later. Some of this might be in those type of transactions, too.
Thanks. Maybe two questions. One, I'm wondering if there's any update on the clean energy looking beyond 2019 with the 2009 and 2011 era plants. Follow up on the M&A, one more question there. As you're looking at it I know you keep doing the $1 million, everything. Are you incrementally looking at larger size deals now that you're getting bigger scale, growing and all that?
Let me answer M&A first, then I'll go back to clean energy future. First and foremost, the size of the acquisitions that their merger partners that come to us is not focused one way. It's more of a grassroots. We're going to get equally as many of the smaller ones as we have in the past, and maybe even more. If somebody asks a question, could we do 100 transactions? Sure. We've got nine different regions in the U.S. in Mike Pesch's unit. We've got six in Bill Ziebell's unit. We've got six in Joel Cavaness's. That's just in the U.S., you go to the same in the U.K., Australia, and Canada. You add up regional leaders that are running $50 million to $100 million type businesses. We have 100 of them. The answer is, each one of those can do a transaction a year.
100 of them will not produce a bandwidth problem for us, they will naturally be smaller because that's just the sheer numbers of them. I think what we're seeing right now is, as prices have gotten a little lofty on the larger ones, you're seeing more come to market where they're saying, "Well, listen, if I can get 10 times for it, what am I waiting for? I used to hope I could get eight times for it if there's a ticket." There's not as many of those, Allison, by number, but we're probably getting more looks at them today. We're also passing on a lot. We talk about the ones that we've done. I can go through a list of 10 $50 million revenue or more opportunities that have hit our desk that we've passed on.
Doesn't fit culturally, doesn't fit in the business niche that we want to do. Already there, don't need them, would rather compete organically. Scott Hudson is the one that probably passes on the most deals of everybody. If it's not a specialty that helps him round out his product. There's deals that come through in that space all the time that we pass on. The bandwidth isn't a problem. The size is naturally smaller anyway, but we are seeing more that are in that. Like we say, there's only 100 in the top 100. In the top 100, number 100 is $20 million of revenues in the business insurance list. There's only 100 that can show themselves in any particularly in total in a year, and one of them is top 10 or the common household names we know.
I think that there'll be more in numbers, I think that's the way we want it to work because each guy, if he's got a $50 million business, he's trying to figure out how he gets it to 100, he'll do it half through organic and half through nice roll-in, M&A where he knows the person down the street where they join forces and become better together. On the clean energy side. Did I get you on that one, Allison?
Yeah.
All right. On the clean energy side, just a reminder, it's an investment arm for us. We're not doing this for the GAAP earnings. We're doing it for the cash flows that it generates. As a result of what clean energy does for us, it allows us to reduce our tax rate in the U.S. to about 5% of our taxable income. We have about $900 million on the balance sheet right now. That creates a carry forward well into the mid 2020s. We don't see our tax rate on a cash taxes paid basis as being greater than 5% going forward forever. Now what happens to the program that for those plants that were put in place by 2009, they have to stop producing by the end of this year.
For those that were put in place by the end of 2011, they get to generate tax credits to 2021. By 2022, if nothing changes, 100% of the GAAP earnings that are shown on the financial statements will disappear because that program is over. We've always said, do not value Gallagher based on the GAAP earnings of our clean energy investments because it's not a core business. It's just the way the accounting works for them. The cash that generates from that, once those GAAP earnings are gone, the cash earnings actually escalate dramatically. We'll do something in order to help you understand that over the next year so you can see that, because nobody really cared about 2022 10 years ago when we started these programs, but now we do. Life has passed.
We'll show you, but our cash earnings will actually go up when the program goes away. Now, what could possibly happen with the program? Remember, we have facilities that operate at locations. Our 2009 facilities have to be turned off, and the facility is a big mixing bowl. Think about it that way, about the size of a semi-tractor trailer trailer. Those locations, we have the ability to move a 2011 plant that's underutilized into a 2009 location. We can pick up one of the semis, move it down the road, and put it in place at a 2009 location. We might be able to extend the locations through 2021 by changing out the mixing bowls.
What happens at the end of 2021, if we don't have any type of legislative change that would extend the ability for these programs to continue to work, then our GAAP earnings would go away. We are talking through those of influence to see if there's a way to get an extension of this program. We employ a lot of folks. We do a lot of good for the environment. There is a social policy betterment here that would be good if they could extend this program. It does spur innovations as a result of this. It puts us in the space. There's carbon solutions out there that generate future tax credits. There's other innovative clean fuel technologies that puts us in the space and lets us operate in. What's our strategy? First, let's see whether the law gets extended or not.
Second, let's see if we can continue to utilize the 2009 locations with a swap out of plants. Third, let's dabble a little bit and see if we can come up with a solution that's a carbon solution that's kind of on the top of mind right now that has a 12-year life on that after implementation, then we've got about five to eight years to put that in place.
Maybe in 2000 and if I could wiggle my nose and make the perfect thing happen, we'll get a little legislative relief to allow us to have a couple more years on each of the plants, lets us reinvest a little bit in that, in innovative technologies, maybe in carbon, then maybe by 2025, we've got a carbon solution because we'll probably be out of tax credits then by the end of the 2020s, then we could start generating new tax credits for the 2030s. It's a lot of words in that, but, Jay?
Doug, I just wanted to get your view or opinion. What did you think when you read the news that Aon was looking at Willis Towers Watson?
What did I think when I read the news of Aon/Willis? First, disbelief, because that's kind of my nature as a CFO, to first doubt and then think. I think it could've produced some nice opportunities for us. I think that a merger of those two People like to work where they want to work, and I think a merger of large companies causes disruption, and I think that if there are people thinking about maybe joining Gallagher and they didn't want to go through a merger like that, it might create some opportunities for us. I thought it. Do I worry about the big getting bigger? Not really. That doesn't bother me. Gallagher's strategy is to get deeper into communities than it is to necessarily pull out of communities.
You heard Tom Gallagher talk about that for a second, and I may have missed it if somebody else did. But I grew up in Sioux City, Iowa. Gallagher happens to have an office there. It was bought before I joined. But my family's been using that agency for 100 years in Sioux City, Iowa. I like the fact that we just picked up Cedar Rapids, Iowa. I like Omaha. I like Sioux Falls, South Dakota. I like Kansas City. We're great in Chicago. We've got a huge footprint in Chicago, Los Angeles, New York, Miami, Houston. We are where they are, but I like getting deeper and closer to it. I think that some of these large mergers like that kind of forget Middle America or the outside. We have a great office in Albany. We have a great office in Des Moines. I like these locations.
I think we just got something in Cedar Rapids, South Dakota. I like that fact that we got the Missouri River all the way to its origins, all the way down to New Orleans, to Mississippi. For me, something like that would allow us to attract talent and also might cause them to further neglect the smaller communities, which I think are a terrific spot for Gallagher to be. Middle market, smaller middle market, good communities where our broker can be a voice of influence, and the communities can have a good giveback philosophy about being involved with charities. These big mergers like that allow us to continue our strategy of kind of being where they're not. That was my first reaction to it.
I was kind of surprised it was on, then it was off, so that kind of stuff befuddled me a little bit, but who knows? It might be back on.
This is just a follow-up to the green energy question previously.
Sure.
I apologize for asking the question, but can you just briefly explain how the, I think you said, the cash earnings go up even if GAAP goes I don't. I didn't understand that. Thank you.
Okay, fine. Here, for a little tutorial on this, it's pretty easy. Let me describe what clean energy does. We have a recipe card that when you mix the recipe, the secret sauce, with coal, we do that in a mixing bowl, and then we put it back out on a conveyor. It goes up into the conveyor, that makes a better fuel. All right? The better fuel, it costs us about $2 after tax to generate about $7 of tax credits. All right? I'm paying $2 per ton of coal burned right now, and I get a $7 receivable from the government that I might not get until 2028 now, because we have enough credits to use in 2019, 2021. What I'm doing is I'm spending cash today to get a benefit in 2028.
Once we stop burning. It could be 2026 or 2027, but once we stop producing new clean coal under this program, because it expires after a 10-year sunset, I don't have to spend the $2 to create the tax credit that we're going to use in the future. I've got no cash going out, and all I've got is cash coming back in from the government. That gave an answer to your question, is that we're still in that investment mode. It still generates positive cash flow today. The amount of credits that we use exceeds the amount of cash that we're spending by about $50 million, I think it is. It is positive cash flow, but the GAAP earnings don't represent that. The GAAP earnings are, I get the benefit today through GAAP, but I don't get the cash until five, six, seven years later.
If people say, "What are you going to do if it shuts down?" It's like, we don't get an extension. Okay. We'll have $1.2 billion of credits on our balance sheet, and we'll be in a cash harvest mode for the next decade. Sounds like it was a pretty good effort. We'll make, I don't know, $1.5 billion-$2 billion off the effort. Then we'll look for a new technology that will be there in the 2030s. That help understand that we're just kind of investing. That's why I don't like the GAAP treatment because it's called an operation as an expense. I'd like all this to go down to the investment component. Because we consolidate these plants on our balance sheet, it's considered an operations cash flow versus an investment.
We paid $8 for a broker today, and we get a dollar from it every year going forward in perpetuity, hopefully, with a growth factor on it. That goes through the investment line when you put the cash out and the earnings come through. That's why I'm not a big fan of a cash flow statement for a broker. I'm not in control of GAAP.
Unfortunately.
Yeah. Probably better. Hey, Mike.
Gallagher clearly has a great track record in terms of its M&A history. I'm curious if you are able to track what % of your transactions haven't lived up to expectations, and if you are, how that's trended, or have they been bigger deals or the smaller deals?
Yeah. All right. Question is, how do we track the return on our acquisition? Well, we do it two different ways. One, we look at it and just gut will tell us whether we made a good deal or not. More importantly, what we do is because most of these are on an earn-out, we actually measure at the end of the third year, because they're on a three-year earn-out, how did we do? Did we get the EBITDA that we bought? Did we get the growth that we thought? Right? We can measure that, and we can prove that the multiple at that time, if you were to price that acquisition at that time, based on the EBITDA that it has that day. We do everything on prior EBITDA, not on forward expected. Right?
We know what the EBITDA is, and we know what we paid in the initial consideration. We know what we paid in the earn-out. Is the multiple of those two greater or less than the initial multiple? We can tell you it's almost a full turn less. I know that if I bought it three years from now, the multiple would end up being one turn less. You can convert that into a return, and it ends up being somewhere around a 16% return on the portfolio of acquisitions that we've done that have an earn-out. It's a little harder on acquisitions where there's no earn-out, or it gets absorbed into the organization. That's a little harder to track. We don't have that many of them, to be honest.
The multiples aren't expanding, we are getting a return that's well in excess of our 8% cost of capital on it. We know that. We also know for the ones that don't work out, we know why. We either didn't get the culture fit right. We decide to buy Ray. He sells everything on the front end. We pass him the chips, all of a sudden says, "I don't want to be a part of yours." That usually takes us about three years to figure out, then we usually sell it back to Ray. We don't have that many of them because you would see that it comes through that book gain or loss statement.
By and large, we recover our investment because we get three years of earnings already from him, then we'll sell it back to him for a six multiple or something like that just to get it off our books. We kind of get our eight or nine out of it over time. We don't lose anything on them. We just buy somebody, and they lose a market. You'll have that on the wholesale side as they've had a great trucking program. Trucks are great, trucks were great. Three years later, they lose the market because nobody wants to write trucks again. I'm just making this up. That one, it's like, did we buy somebody that turned out to be a jerk, or did the market just shift on us?
Usually, we find out the market shifted, the person's still a really decent person, we'll find another program for them, or sometimes you just have to say it didn't work out. How many of those happen? Of the 50 that we do, last year or 48 or whatever the number is, we'll probably regret two of them at some point. The numbers that don't work out are very small. The ones that do work out, the multiplicative effects of it, their kids come into the business. They've got good succession planning. They go off to run regions for us. If you look at our nine regional leaders in Mike Pesch's area, I think of them, let's say 60% came through our internship, 40% came through their parents' agency that are running the business.
If you look at what it does to feed the succession planning, those are intangibles that you can't get by just looking at the numbers, too. Sean?
Can you talk about if you're seeing any sort of trends in reinsurance demand?
I probably am not the deepest student of that right now, but we are seeing more use of reinsurance out there. Reinsurance demand seems to be increasing compared to maybe where it was three or four or five years ago. In terms of our space, remember, we own about 20% of Capsicum, so that's our insight into the business. They're having nice growth this year. That's an indicator of not only their expertise in the space, but I think there's some market lift in that, too. Demand for reinsurance seems to be increasing, Sean, is what I would say. Whereas pricing, I don't see it getting any lower. I don't know if I would've said that three years ago. I probably would've said, "Yeah, it can go lower." I don't see how it's getting much cheaper at this point.
Competitors said during their conference call that they wouldn't be surprised to see a blip or a slowdown in the economy. Are you guys seeing anything that suggests that or still pretty healthy?
Well, listen, I think there's two types of slowdown in the economy. All of us sitting around this table probably would've never dreamt that the slowdown was a screeching halt in 2008, in 2007 and 2008. I believe the recessions are a natural part of what goes on in economic cycles. Do I see a slowdown? Probably. Do I see it as being one that's like the Great Recession or the Little Depression? I don't see it that way either. Our customers are still putting more trucks on the road. They're still building more buildings. I think that what's going to stunt growth to a certain extent might be is they just can't hire more people, right? If you're trying to build your business and you need people to do that and there's no more people to hire, how are you going to do that?
They're going to go someplace else to get the labor, probably. Maybe they'll expand into Canada or into Mexico, or they'll go someplace else. At some point, if there's just no more people to put on the payroll, how do you grow your business? You get smarter. You get more innovative, that will take it. Maybe you offshore, maybe you do some things. I don't see the screeching halt coming at this point. A little slowdown, okay. If it slows down a little bit, it's not going to be like 2008. In fact, as you heard Bill Ziebell say, if I got full employment inside of my books, I still got to pay consulting for my 401(k), whether there's 10 people in the program or 1,000. A lot of our work is dependent on economic growth.
As long as it's not going backwards, if growth slows down a little bit, that's different than growth going backwards. Maybe that's a better way of saying it. I just don't see backwards growth. I don't see contraction. I don't see unemployment going up dramatically. I think we're in a full employment environment right now, I don't see the economy going backwards. Do I see it slowing down in growth? Maybe a little bit, but it's not anything that I'm terribly worried about. I don't know how we're doing on time. I don't wear a watch, so it's served me poorly when I try to take a train. I want to thank everybody for coming. I think that hopefully you felt kind of the same story, I hope you didn't feel that there's any lackluster enthusiasm, we're really excited about the business.
Just not much has changed since we spoke to you six weeks ago, or we spoke to you six months ago, which I like. Right now as a CFO, I like the fact that we're running our business, we're making the investments that we need to, we've got great business prospects going forward. I appreciate you all coming today, hopefully, we'll pull off a good 2019 like we did in 2018. Thanks, everybody.