Good morning, welcome to Arthur J. Gallagher & Company's second quarter 2015 earnings conference call. Participants have been placed on a listen-only mode. Your lines will be open for questions following the presentation. Today's call is being recorded. If you have any objections, you may disconnect at this time. Some of the comments made during this conference call, including answers given in response to questions, may constitute forward-looking statements within the meaning of the securities laws. These forward-looking statements are subject to certain risks and uncertainties that will be discussed on this call, which are also described in the company's reports filed with the Securities and Exchange Commission. Actual results may differ materially from those discussed today. It is now my pleasure to introduce J. Patrick Gallagher, Chairman, President, and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin.
Thank you, Rob. Good morning, everyone. Thank you for joining us this morning. We appreciate you being on the line. This morning, I'm joined by Doug Howell , our Chief Financial Officer, as well as the heads of our operating divisions. I couldn't be more pleased with the quarter. It was just a great quarter. Brokerage results were strong again, adjusted revenues up 24%, 4% of that organic. Adjusted EBITAC is up 28%, and our margins expanded by 89 basis points. In the risk management segment, we had an outstanding quarter. Revenues up 13%, virtually all of that is organic. Adjusted EBITAC is up 21%, and our margins improved by 110 basis points. When I combine the operations, the way I like to look at the company, adjusted revenues up 22%, adjusted EBITAC up 27%, all in organic growth, 5.8%, and total company adjusted EPS up 18%.
Really, really good work by the team. A great quarter and first half of the year. This, I think, is a testament to our strong sales culture. We work very hard to serve our clients and to aggressively pursue new ones. We've invested heavily in our sales efforts. We've brought in sales training for all our people. We use salesforce.com. We invested in our niche and product line capabilities. We're very, very good at team selling. I'm pleased that our team has adopted our tools and feel we should continue to drive organic results. Mergers and acquisitions continue to be a key strategy. In the quarter, we completed 13 mergers, 11 in the brokerage segment, 2 in risk management, for approximately $90 million in new revenues. The 2 risk management acquisitions were international, in New Zealand and the U.K.
Our total in the first 6 months is 24 acquisitions and $120 million in new revenues, our pipeline remains very robust. Our 2014 larger acquisitions are integrating extremely well. As I do every quarter, I'd like to stop and thank all of our new partners for joining us and to extend a very warm welcome to our growing family. Let me move to the property casualty rate environment. We did a mid-year survey of our PC renewals. We polled our brokers on the rate environment in the U.S., U.K., Canada, Australia, and New Zealand on our most prominent property and casualty lines. Let me provide you some of that color. On the domestic side, in property, 75% of our property accounts renewed down, but most of those were slightly at single digits. A quarter were flattish to up just a little tiny bit.
Frankly, I don't think it's unreasonable at all given the fact that we have not had major catastrophes in the last few years. A little better story in international property, as we're seeing slightly more balanced results, with half we're doing about flattish to up a little and half down slightly. More flattish overall. Underneath this, Australia and New Zealand are down the most. U.K. is in line, and Canada is flattish to up the most. Turning to casualty lines, interestingly, a similar feel across our domestic and international operations. Half up slightly, single digits, half down slightly, single digits, mostly kind of flattish, with some accounts getting greater than 10% discounts. Domestically, commercial auto was more on the upside, workers' comp and professional lines were flattish, and general liability and umbrellas were slightly down.
Internationally, Australia and New Zealand are seeing by far the most downward pressure, especially in auto. As I said earlier, U.K. is similar to U.S., Canada is flat to up a bit. Our employee benefits team is very busy assisting our clients' businesses as they try to manage their benefits and HR needs as a result of increased complexity, higher costs, and the war for talent. Domestically, our customers continue to navigate the impact of the Affordable Care Act. These market dynamics continue to present us with growth opportunities as we work to meet the needs of our clients. In addition, our private label insurance exchange, the Gallagher Marketplace, is seeing very high interest, and a good number of clients have committed to moving to the exchange. As I said earlier, our risk management business, Gallagher Bassett, had a great quarter, with top-line growth of 13%.
Our stated goal at Gallagher Bassett is simply to provide our clients globally with the best claims outcomes. A great quarter. We're thrilled to have it in the books. Very good start to the year. Over to you, Doug.
Thanks, Pat, good morning, everyone. Like Pat said, the second quarter was another terrific quarter for Gallagher. Starting with the first page, with the brokerage segment, adjusted EPS of $0.71 is up nicely over prior year. As for foreign currency, you'll see about $0.03 this quarter. Looking forward, we are forecasting $0.02-$0.03 in the third quarter and about $0.01 or so in the fourth quarter as a result of the strengthening dollar. As for integration, you heard Pat say our integration is moving along as planned. Looking forward, we're seeing about $0.07-$0.08 in the third quarter and about the same in the fourth quarter. As for 2016, our integration costs should drop dramatically, and I'll have better numbers for you when we do our October conference call. Same with brokerage, turning to page three to the organic revenue table.
Let me give you some flavor behind the 4% organic growth. Domestic retail was slightly better, domestic wholesale was actually a couple points better, and international, about a point lower. Within that, we saw about a quarter of a point net drag from rates and exposure. The only larger deal that was not fully in our organic numbers this quarter was our Canadian businesses, which we acquired on July 1st, 2014. Their organic looks slightly better than what we posted overall, but wouldn't have moved the average 4%. As for modeling revenues, currently foreign currency seems to be the biggest modeling challenge. To control for this, assuming that current exchange rates first reduce prior year revenues by about $25 million-$30 million in the third quarter, then about $15 million in the fourth quarter. After you do so, apply your pick for organic growth.
If you don't do that, if you don't reduce prior year revenues first, you can't help but overshoot on current year and current quarter revenues. Finally, when you're making your brokerage segment organic pick for the third quarter, please remember that last year's third quarter, we disclosed and then discussed in our conference call that we had an unusually large number of larger account wins in the third quarter of 2014. You might want to moderate a bit your pick for this coming third quarter to control for that comparable headwind. As for acquired revenues, we've again provided a table on page 16 of the investor supplement showing our range for rollover revenues for the next two quarters for mergers done in 2014 and in the first half of 2015.
You'll need to add to that your pick for newly acquired revenues in the third and fourth quarter. Please remember to weight the closing dates of those new deals more towards the last month of the quarter. Moving to page four to the brokerage segment adjusted EBITAC margin table near the bottom of the page. You'll see that we expanded margins by about 90 basis points. 20 basis points were from the roll-in of the larger deals just in the range that we estimated in our last call. Then 70 basis point came from our organic growth and expense control. Looking forward, last year, our brokerage segment posted 26.8 points of adjusted margin in the third quarter of 2014. We don't see more than that for the third quarter of 2015 for several reasons.
First, we won't get any meaningful further lift from roll-in of larger deals because all of them were in our numbers last year in the third quarter. Second, I just mentioned that we had unusual success in net larger account wins last year, and those fueled margins last year. We're renewing those, but it does make it harder to grow over. Third, we believe our compensation costs in the U.K. will run a bit hotter in the near term as a result of having some senior management turnover that we discussed earlier in the year. Finally, in the brokerage segment, let me also give you some non-cash estimates for the third and the fourth quarter for the brokerage segment. For depreciation, assume about $15 million of expense per quarter. For amortization, about $58 million. For acquisition earn-out amortization, assume about $5 million.
As we do more M&A, for every dollar we spend, you'll need to increase amortization by about 1% of the purchase price per quarter, and that'll get you close. Let's turn now to the risk management segment on page five. Really a terrific quarter across the board. Of the 13.4% organic growth, domestic was over 10% and international approached 20%. Looking forward, recall that we have that large Australian account that goes into runoff this quarter. As you model the third and the fourth quarter, the impact of that runoff account will be more pronounced, meaning that you'll see organic growth more in this mid-single digits and not in double digits. You should also adjust prior year revenues downward for FX before you apply your organic pick. Assume FX of about $5 million in the third quarter and $3 million in the fourth, and that'll get you close.
As for margins in the risk management segment, you'll see that we blew past our 16.5% margin target. You'll read in footnote one to those tables that we had a one-timer for some additional performance bonus income of about $1.8 million related to that account going into runoff. If you remove that one-timer, we would be about 20 basis points above our 16.5% margin target, which is more in line with our expectations. As for risk management non-cash items, model about $6 million of depreciation in the third and the fourth quarter, and you'll get close. All right. Let's shift to page six of the corporate segment. Just a small comment. Really a nice quarter and right in line with the estimates we forecasted last quarter.
When you get to page 15 of the investor supplement, you'll see that our outlook for the rest of 2015 is very close to what we gave you last quarter. Finally, some comments on our M&A program. First, we closed 13 mergers this quarter at a weighted average multiple of just over seven times. We feel very good about continuing to do a lot of nice tuck-in mergers yet this year. Second, looking out over the remainder of 2015 in terms of M&A funding, based on our current pipeline of mergers, we are seeing cash and debt funding much of it, plus using about two to three million shares. This means our forecasted fully diluted weighted shares outstanding for the third quarter will be about approximately 177 million shares. All right. Those are my comments. Like I said at the start, another terrific quarter. Back to you, Pat.
Thank you, Doug. Rob, we're ready for some questions.
Thank you. The call is now open for questions. If you have a question, please pick up your handset and press star one on your telephone keypad at this time. If you're on a speakerphone, please disable that function prior to pressing star one to ensure optimum sound quality. You may remove yourself from the queue at any point by pressing star two. Again, that's star one for questions. One moment while we poll. Our first question comes from Sean Dargan with Macquarie. Please proceed with your question.
Yeah, thanks. Good morning. Given the Willis Towers Watson tie-up, Pat, I was wondering if I could get your thoughts on the future of your use of the Liazon platform and the exchanges in general.
Sure. We have a solid contract with Liazon. The brokerage community is going to be very important to them. As you know, Towers spent a good bit of money on that asset. In order for it to play out, they're going to have to be trading with others outside of the Willis and the Towers group. We've been assured that that contract is solid. At the same time, Sean, I'd be honest with you, we've got our eye on others as well.
Okay, great. Thanks. I'm not sure if I caught this, in terms of being able to finance further acquisitions, is the at the market program over? Is it going to be renewed, or does it have to be renewed?
There's about $15 million left on the program, and at this point in time, we have no plans to renew it.
Okay, great. Thanks. That's all I had.
Thanks, Sean.
Thanks, Sean.
Our next question is from Charles Sebaski with BMO Capital Markets.
Bob, you got to speak up. I can't hear you.
Our next question is from Charles Sebaski with BMO Capital Markets.
Thank you.
Please proceed with your question.
Just a couple of follow-ups. On that shares you mentioned for the M&A going forward and the $177 million, is that 2 million-3 million shares a quarter for three Q and four Q?
No, just in the third quarter.
Okay. Then on that, on the overall M&A basis and pipeline, you guys obviously continue to have success in finding companies that want to join Arthur J. Gallagher, seven times multiple seems reasonable. If I listen to your competitors and people out there talking, it seems that there's a lack of opportunity out there, and there's crazy prices being paid in the market. Would appreciate your thoughts on how you guys are able to continue being successful at seemingly very reasonable multiples, where the competition might say pricing is getting too high or irrational, or PE's murking everything up, and just how you see that.
Look, private equity has come strongly into our business. I think it probably now consumes about half the acquisition activity that occurs, which is smart money coming into a great business. I really can't complain about that. When you do get to sizable platform acquisitions, pricing is up. But if you notice that we've done 24 acquisitions for about $120 million of total revenue. Tuck-in acquisitions are very prevalent. They are not as pricey, and we continue to see great success in that regard. I don't see our pipeline diminishing one bit. We're not also facing so far this year, we haven't had any opportunities like we had last year to do something that was substantial in nature. We have announced that we're going to do the William Gallagher agency in Boston. We're very excited about that. That is a platform agency.
I think the comments from others are accurate. Private equity on some of the deals drives prices up. You have to decide whether you want to play in that market or walk away. I think we're very disciplined when it comes to that. At the same time, I think we offer a terrific platform for people to come aboard, build their business, which in turn builds their income, and have a great time building out their company.
About the U.K., you talked about, obviously there's management change going on. You talked about it coming into comp expense. Have you seen any bleed through to the rest of the organization with any other defections of senior brokers or relationship managers, or has the headcount and the people there in the U.K. stayed as expected?
Our U.K. team has stayed put. We're very pleased with Grahame Chilton as our CEO. I think he's done a great job of explaining to the people why they're in a great place. To answer your question about other senior management and senior leaders around the world, we've had absolutely no further defections.
Excellent. Just finally, one numbers question. In the risk management division, it seemed that the comp expense ratio was particularly low this quarter. I'm wondering if there's something in that, or is that kind of where we can expect it? I have a kind of 57.5% versus a 59.5% last year and 60% last quarter. Just wondering if I'm looking at that right and how you view that?
Well, I think the best thing to do is our margin target is 16.5% for the year for it.
Okay.
The geography between those two lines. We were lower this quarter, but I think that might be as much a denominator issue. As I read through here, we did have a small little true-up. Prior year bonus might have given us a little bit of earnings. On the other hand, we had some higher professional fees in the operating expense. Nothing sticks out in that.
Okay.
That business is trending a little bit lower on the comp side.
Excellent. Really appreciate the answers.
Thanks, Charles.
Our next question comes from Mark Hughes with SunTrust. Please proceed with your question.
Yeah, thank you. On the talent front, you talked about the war for talent in the context, I think, of exchanges. In your own business, are you seeing compensation expense? Is there any upward pressure on that? Alternatively, do you see any opportunity to step up recruiting with some of the merger activity that's going on?
Well, Mark, you know us very well. We're always recruiting. Always looking for new talent to bring into the company. We bring that talent in a whole number of different ways. As I said in my comments, we've got 250 kids in our internship this summer. Very excited about that. If I could recruit half of them, I'd be thrilled. If I could do more than half, I'd be thrilled. We're constantly looking at seasoned players in the field that are competitors of ours, trying to get them to consider joining us. Of course, our acquisition activity brings new blood into the company every month, every quarter. In terms of seeing upward pressure, not particularly. I think, remember, when it comes to our sales force, we're one of the few larger players that still is very comfortable paying on a formula.
You go out and sell some business, you're going to get a raise. It's not really a big question, Mark.
Yeah, I think on the service side of it, Mark, as you know, there is competition for talent when it comes to some of the back office skilled positions in IT, finance, HR, legal. We were in a recession for eight years, I think that kept some people staying put before they'd looked to other jobs. There is a little upward pressure there. On the other hand, we still do have our offshore centers of excellence that allows us to mitigate some of those service costs. We're not seeing wage inflation in India in particular. We still have operating improvement opportunities to maybe offset some of that wage inflation. By and large, Pat's right about that. On the producer level, they work on a formula, that takes care of itself.
In terms of the service layer, there's a little wage inflation pressure there, we think that we've got opportunities to mitigate that.
Pat, I'm sorry if you touched on this earlier, are you going to be at any sort of competitive disadvantage by not having a big consulting operation?
No. Mark, when we compete in the marketplace, 90-plus % of the time, we know this because we've got the systems to measure it now. 90% of the time, we compete against smaller competitors. We're very good at large risk management accounts, don't get me wrong. When you look at our book of business and peel back the onion, 90% of our revenue comes from the commercial middle market, and that's where we are really strong, and we fight the smaller local agent most of the time. I don't feel at any kind of disadvantage at all. Besides, I would say our consulting division, our benefits consulting division now is down to less than 35% being health and welfare. The other business is all consulting.
Thank you.
Thanks, Mark.
Our next question is from Bob Glasspiegel with Janney Montgomery Scott. Please proceed with your question.
Good morning, Gallagher.
Good morning, Glasspiegel.
We'll keep this going, our last name basis. This is a 20,000-foot question for you, Pat. As a very esteemed observer of the industry, there seems to be an acceleration in consolidation as an important theme in the carriers that you deal with at a pace that you and I haven't seen before. I think almost every company is questioning whether they've got the right scale, technology spend , tax structure to compete in a new world. I'm just curious whether you think this is a blip or a trend that's going to accelerate. Do you see that you're dealing with the bigger companies to a greater extent than the regionals? To what extent is technology and efficiency really important in you deciding what carriers that you deal with? Is that trend going to continue or wane off?
Well, Bob, I'm going to break all 52 questions down to a few that I can answer. First and foremost, I do think this is a trend that we're going to see. I think the pressure for cost containment, IT spend, you hit right on those deals. Tax structure is going to foster continued acquisition activity. I also think investment returns are going to push that. I do see bigger players getting bigger. We trade very well with the larger players, but I would also say that in many of our branches, those local regional carriers play very important roles. Very important roles to, for instance, in Cincinnati, Ohio. Very important relationship with Cincinnati.
Those that are consolidating, just take ACE and Chubb, two great companies, two great relationships with Gallagher, and we wish them well and hope that we can help them in terms of building out their company to help our clients. In the end, what our job is to pick the right carrier to recommend to our client. That is influenced by things like efficiency and ability to communicate.
In the end, it's making sure that the cover is right, the price is right, and we're replacing this with a carrier we trust will meet their obligations. That is why we're trusted advisors.
Your top 5 to 10 relationships, has that grown as a percentage of your total book over the last 10 years or not? Do you see that number increasing or staying about the same perspectively?
It's grown substantially, and we see that continuing.
Thank you.
Thanks, Bob.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Dan Farrell with Piper Jaffray. Please proceed with your question.
Thanks, good morning.
Good morning, Dan.
Just a question around margin. Doug, you mentioned the comments on the third quarter and some of the comparison difficulties there. I'm trying to think a little more longer term. If we look at the operating leverage of 70 basis points that you got this quarter off of 3.9% organic. If organic trended at that level, is there any reason to think that you wouldn't be able to get that same kind of operating leverage, or was there something sort of unusual in second quarter?
I think that my standard rack comment that we've talked about for about the last 20 quarters is it's very hard to grow margin in our brokerage business when we don't have organic growth above 3%. If we had consistent organic growth in the 4%-5% range, we would still show some, what I would consider to be organic margin expansion. If we get into that fourth quarter, if we get into the next year we're posting 4%, 4.5%, something like that, you would see some margin expansion on it. I will say, however, though, that if you look back over the last four years, I just went back and I looked at the second quarter of 2011, we're up four margin points in the last four years.
We're actually getting to the point in our margin level that margins don't grow to the moon. Trees don't grow to the moon. We feel that our margins are good where they are now. There could be some margin expansion, but we have a lot of terrific investment opportunities that we'd like to do to hire more producers, to bring on more talent, to open up more product lines and opportunities. We feel that, and I'm sensing that we're already well-positioned in terms of the margins compared to the other publicly traded brokers. Our margins are in really, really good shape. We like the idea of investing for growth. I say, yes, it can happen if you're above 3%, but I think that we've got lots of investment opportunities going forward that we intend to make.
Just a little bit like in our Gallagher Bassett unit, we're up in that 16.5% range, and we feel comfortable with that.
Okay. Thank you very much.
Thanks, Dan.
Our next question is from Adam Klauber with William Blair. Please proceed with your question.
Thanks. Good morning, everyone.
Morning, Adam.
William Gallagher is a great franchise and a good strategic fit, really helps your New England presence.
Yep, you're right.
What'd you guys pay for the deal?
The price on that is somewhere around $140 million-$150 million for it.
Okay, thanks. Sorry. Will that close in the third quarter?
Yeah. Actually, we were kind of hoping that maybe we'd get the regulatory approval a little sooner than we. We're still closing now, but we hope to close it in the next week or two.
Okay. Thanks. As far as the acquisition charges. For the first half, you said around $0.09 per share, and you're right on that $0.18. There's also workforce lease termination and acquisition-related adjustments that are roughly another $0.11 for the first half. I guess, are those related to acquisitions? I guess, how are they different than the integration charges?
Most of those have to do with just as we rationalize our workforce in other places, most of that relates to that. A lot of it has to do with leases more than workforce termination.
Okay. That makes sense. For the second half, I think you were saying around $0.20 of acquisition, integration charges. Will there be also workforce and lease termination and acquisition-related adjustments?
There could be some. Right now, the way our real estate portfolio, we've got 63 leases under renewal process right now that we're working on. I don't see any of them in large platform places like L.A., San Francisco, et cetera. I don't see right now big work or lease charges as we move into new locations. I don't see that number in the next three quarters being nearly as big as it was in the first two.
Okay. Just to reconfirm what you said. For 2016, we should look for all those charges to be materially lower than they were in 2015. Is that correct?
That's correct.
Okay.
I mean, listen, we're a year into our larger deals. I think that if you go around the world, we're in really great shape. The complexity is in the U.K., really pushing Giles Oval, the old Heath Lambert, the old Arthur J. Gallagher businesses together over there. It just takes a long time. I think at one point, there was over 200 legal entities there, 40 different systems. That's the place where integration is taking its time. It's highly regulated. There's a lot of process that you have to go through in order to get them integrated. They're on plan. We're not trying to recreate a product or anything. We know the systems. It's more of a migration plan than it is trying to figure out a solution on it.
We feel like we're on good pace for that, the team's doing a terrific job under the circumstances over there. By and large, Australia, New Zealand, we pulled ourselves out of Wesfarmers down there. That's pretty well done. We hit our milestones in June. Bollinger was a textbook integration in the Northeast, we feel that thing's fully into our books and done. Canada's doing a terrific job. We had six different, really kind of interlocked, but independent agencies up there and brokers around Canada, that they're coming onto a common Canadian system. The team up there is doing a great job. All of this is moving along, and we really haven't had any hiccups along the way. I don't have any issues, but 2016 should be a pretty much so a lined up year for that.
Okay. That's helpful. As far as clean energy, if I was right, it looked like you bumped up your numbers moderately for the fourth quarter. Is that right?
Yeah, a little bit there. I think that if you look at on page 15 or 16 of the investor supplement, we provide a schedule in there that shows what's generated, and our outlook of expectation for the next. As we get closer to the end of the year, we're moving up the bottom end of the range a little bit on that.
Okay.
That's natural just because, remember, it's hard to improve the top end of that range, because if they're running at optimal capacity at the top end of range, the lower end of the range is where the sensitivity is. If you take a plant down, you get zero. You can't double a plant's capacity, because that's just not the way it works. We're very pleased that the bottom end of that range is moving up.
Right. That's great. It looks like overall, that clean energy net earnings will be up roughly 10% or even a little bit more for the year, which is a nice improvement. How should we think about 2016? Is there potential for further improvement in earnings? Are we closer to being topped out within clean energy?
Yeah, I think that if you look on that in the press release, we say that there's about eight plants that we're looking for homes on still.
permanent homes. We're getting good momentum on that. The team that works on that has had some really nice uptick. I would guess that we'll see some more momentum on that in September. You kind of get into the summer holiday season here. I'd expect to have some good news on that by the time we get to the third quarter.
Oh, great. Size-wise, are those plants around the average size of your other plants? Larger? Smaller?
I think they're larger.
Okay, great. Thanks a lot.
Thanks, Adam.
Our next question is from Meyer Shields with KBW. Please proceed with your question.
Thanks. Good morning. I came in a little late. I apologize if you covered this. Did FX widget changes year-over-year have any impact on your margins?
We control for that in our margin computations, Let me flip to that page. I don't think it had a significant impact in the margins. Very little, as a matter of fact.
Then conceptually, when you've got all this consolidation going on, I don't know whether either of these make sense. We could either have carriers look to squeeze the brokers as an expense management strategy or maybe pay a little bit more to ensure that there isn't a lot of spilled over revenue. Are either of those relevant factors?
Not at this point.
Okay.
We haven't seen in the past where a carrier that goes through a consolidation is interested in disrupting its distribution system.
Right. I think we've got terrific, in particular, the ACE Chubb acquisition, which I think what you're referring to. We've got terrific relationships with both of those incredibly fine companies. On a combined basis, we'll be a very, very large player with the ongoing Chubb. As I said, the relationship is very strong. Doug's right. You don't do something like that and then piss off your clients.
No, I'm wondering actually if part in the other direction, whether there's an unusual benefit likely.
No, I don't think so.
Okay, fair enough. Lastly, in general, when we model contingents and supplementals, should that sort of correspond to the % revenue growth from acquisitions?
That just depends. Especially when as we start doing some of these nice tuck-in acquisitions, their compensation programs can be all over the board. I don't think you can have a meaningful modeling assumption on that. Overall, you can see over the last, I don't know, 12 or 13 quarters that by and large, our organic growth in those kind of stays pace with our base commissions and fees. You'll get some geography between the two lines or everything, I would model those as a growth number that's not all that different than our base commissions and fees.
Okay, perfect. Thanks so much.
Thanks, Meyer.
Our next question is from Ken Billingsley with Compass Point. Please proceed with your question.
Good morning.
Morning, Ken.
Good morning. I wanted to ask about, this is page three of the press release, and specifically the organic change in contingent commissions being down 10%, and specifically what's driving that. I know this may be more of a read through the carriers themselves, but is this loss performance changes here maybe where the decline's coming?
Listen, I think that the geography between contingents and supplementals is something. If you look at the two together, you'll see a number there that grows about what the base organic. We did have a contract flip that we thought was going to be a contingent that moved up into a supplemental just by the nature of it. Again, the lines on those two continue to become blurred. They were much more pronounced on what a supplemental was and what a contingent was when you go back into the 2008, 2009, 2010 era. By and large, we're indifferent to whether it's a supplemental or a contingent. What works best for the carrier and what works best for us, we're happy to do it.
There's some black and white lines that we draw and where we classify them, but there's nothing there that I would consider to be noteworthy.
Okay.
It's more semantics than it is anything else.
Obviously, we can't use the numbers maybe to infer what's going on. Let me just ask, kind of penetrating a little bit of the veil then. Can you talk about maybe performance contingents? How are the carriers doing? Are you getting the full amount on profit contingents, or are those coming in a little bit lower than expected current positions?
It's a bit of a mixed bag, Ken. If you take a look at Cincinnati's numbers this week, they hit the ball out of the park. They're a very prominent carrier with us. Those that are doing well, seem to be doing very well in this environment, and we are benefiting from that with our contingents. It is something that you're right to be looking at that line because they are indeed contingent. If in fact this market softens to any great extent and those results begin to fall, we will feel pressure on the contingent line.
Okay, great. The other question I just had is on M&A and the opportunities. You discussed about the competitive market domestically in North America, just in general. The U.K., Europe, and Australia, New Zealand geographies, are you seeing the same competition, or is that a nice greenfield for you to still look for growth?
There's good competition, but it's not as fierce as it is in the United States, and it is greenfield for us. We've got a building pipeline in Australia. New Zealand's a smaller market, but there's a building pipeline there. We've got a very nice pipeline building in Canada, and we've got a very nice pipeline that has been built and is continuing to build in the U.K. Those are a little bit of a greenfield opportunity for us, for sure. You have to look at our business, and really, it's almost hard to get your head around it. According to one consulting firm that we work with, Reagan Consulting, they believe there's 30,000 agents and brokers in America, and that's firms, that's not people.
Now, Business Insurance put out their top 100 just a couple of weeks ago, to be number 100 in the United States, you did $26 million in total revenue. There are thousands and thousands of these agents that do two, three, four, $5 million that we offer a terrific home to. These are typically run by the entrepreneurs that built those businesses. If we do our job and we pick the right ones, these are people that want to stay in the business. They love the business, they like to take care of clients, and they love to go out and sell. With our platform capabilities and ability to team with people, we give them a great place to land. I see terrific opportunities going forward. Is there competition? Sure there is.
I believe we compete very favorably with the private equity model, especially for those that want to fold in, take advantage of the capabilities, and aren't necessarily looking for the next flip. It's one thing to join us and go after accounts that you could have never talked to before, even some of those being your good friends, but at the same time, knowing that you're at a stable platform, you're at a stable place. You can make the sale that private equity is great because they're going to pay you this, keep a little equity in, flip it, get a second bite, and then flip it again, and get maybe a second bite there, and then flip it again, and before you know it, you don't know where the hell you are.
Very good. Well, thank you for taking my questions.
Thanks, Ken.
Our next question comes from Mark Hughes with SunTrust. Please proceed with your question.
Yeah, thank you, Doug. I wonder whether you might sharpen up your outlook in the corporate segment, the potential out there. You think you've mentioned eight plans. Assuming you have some reasonable success, what does that mean in terms of the EPS in corporate, kind of notionally as we think about 2016?
I don't know if I'll be able to do the math in my head right here. I think that we said, if you go back to what our commentary, and I'm going by memory here, we thought that there might be a flattish to a small step up in 2015, and it looks like we might step up maybe 10% in clean energy this year overall. Next year, you might have another step up of 15%-20% based on what we're seeing right now. When I look at next year, 15%-20% step up if we get the plans in. Not all of them will come in at the beginning of the year. That would be something that would come in over the year.
15%-20% is probably the right number.
When we think about the EPS impact of that, is that 15%-20% on the EPS number?
Well, listen, I think that if you look at clean energy that's on pace, if you go into our guidance and our supplement here, clean energy is on pace this year to do somewhere around $100 million-$105 million, something like that. If you take another 20% on that, at the top end of the range, you might pick up another $20 million at 170 million shares outstanding. Maybe you pick up another dime. Is that how the math works?
Yeah. Thank you for that. Secondly, in the risk management, I've had some commentary on workers' comp claims frequency, and I know you're picking a business, and so you have some additional growth, but sort of on an underlying basis, what do you hear lately about workers' comp claims frequency? Is there any loss inflation? Has that picked up at all?
First of all, on the claims frequency side, workers' comp is the bulk of what we do in the U.S. Those claim counts are up about 3%, which is good. That is a proxy for the economy. When shifts come back online, claim counts tend to go up. In terms of cost inflation, we see some of that on the liability side, not so much on the workers' comp side. People are taking up our managed care offerings to a great degree, and that is helping us get people back to work quickly. That's the key to a comp claim. The key to a comp claim is getting it reported quickly, interacting with the claimant very quickly, getting them to the right physicians and the right people and the right nurse case managers, and getting them back to work. That's how you drive the outcome.
Thank you.
Our next question is from Kai Pan with Morgan Stanley. Please proceed with your question.
Hi, Pat and Doug. Thanks.
Hi, Kai.
Follow up one more question with M&A. In terms of organic, just specifically in Canada and New Zealand, Australia, taking U.K. out of there, just on the international side, is that acting as a little bit of a headwind right at the moment? Where are you at and what do you want it to be looking like going forward out of those two regions?
Yeah, good question. I think if you go around the world, Canada is terrific. Just realize that Canada is going to perform at the level that you're going to see the overall average at least. At least that's our indication right now. Australia and New Zealand, it's kind of double whammy down there, that you've got rates falling off. I would call that a true soft market, not a moderating market down there. I think that, as you know, New Zealand is a terrific franchise that's doing well, and Australia is starting to get its legs under it after our acquisition. There's pressure in both of those economies, not only from rate, but also from economic activity. If I just look at those two together for the full quarter, remember, we didn't own them for the full quarter.
We only owned them for two weeks of the quarter. The measurement systems on organic could be a little different between their old systems and our new systems. If you look at that, it's about flat between Australia and New Zealand in terms of organic growth. Most of that has to do with rates and exposure, not necessarily new business loss wins. If I break them apart, you're seeing New Zealand subsidize Australia by maybe 3 to 4 points, something like that. If you look at those two numbers there, but Canada is doing terrific.
Great organic growth in Canada. We do, especially on the retail side, have organic growth in the U.K.
Thanks, guys. That's perfect. No further questions.
Thanks, Kai.
If there are no further questions at this time, would you like to make any closing comments?
Yeah, Rob, please. Thank you. Just one quick wrap-up comment, and we'll let everybody get going. You might recall at the outset of our call, I mentioned that I was pleased with our organic growth. All in 5.8% is a very strong result. Let me tell you, this is no accident. Over the past decade, we've invested heavily in our new business and retention strategies. We've brought in sales training, sales management systems. As I mentioned this summer, we have 250 interns learning about this great business. Our cross-selling efforts between our wholesale property casualty and benefit teams are at all-time highs. Our international and U.S. teams are working seamlessly on all types of new business. It's safe to say that our aggressive sales culture is alive and well. Thank you all for being with us this morning. We'll talk to you in a quarter.