Earnings Call: Q3 2026

Oct 29, 2026

Summary

Combined-segment revenue grew 18% and organic growth was 5%, with adjusted EBITDAC up 25%. Management maintained its 2026 growth outlook, cited strong acquisition and synergy execution, and expected continued growth and margin momentum in 2027.

Good afternoon, and welcome to Arthur J. Gallagher & Company's third quarter 2026 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 meanings of the securities laws. The company does not assume any obligation to update forward-looking statements provided on this call. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to the Information Concerning Forward-Looking Statements and Risk Factors sections contained in the company's most recent 10-K, 10-Q, and 8-K filings for more details on such risks and uncertainties. In addition, for reconciliations of non-GAAP measures discussed on this call, as well as other information regarding these measures, please refer to the earnings release and other materials in the Investor Relations section of the company's website. It is now my pleasure to introduce J. Patrick Gallagher Jr., Chairman and CEO of Arthur J. Gallagher & Company. Mr. Gallagher, you may begin. Thank you. Good afternoon. Thank you for joining us for our third quarter 2026 earnings call. On the call with me today is Doug Howell, our CFO, and other members of our management team. We had an outstanding third quarter. Our team delivered strong revenue growth and excellent profitability. For our combined brokerage and risk management segments, our two-pronged revenue growth strategy, growing both organically and through acquisitions, delivered total revenue growth of 18% in the third quarter. Organic growth was also strong at 5%, reflecting excellent new business, strong retention, positive exposure growth, and the diversity of our business. And we continue to generate outstanding profits. Net earnings grew 25% and adjusted EBITDAC also grew 25%. That marks 26 consecutive quarters of double-digit adjusted EBITDAC growth, along with another quarter of margin expansion. Doug will break that down for you in a few minutes. On a segment basis, brokerage revenues were up 19%, of which organic was 5%. We saw excellent growth across our retail, P&C, wholesale, and reinsurance businesses. We're now more than a year into the AssuredPartners combination. The business is living up to our high expectations. Client retention remains strong and the teams are working very well together. Our risk management segment, Gallagher Bassett, posted revenue growth of 14%, which includes organic of 10%, driven by excellent new business and strong client retention. Our consistent top and bottom line growth is driven by the four strategic pillars that have guided Gallagher for decades, growing organically, growing through M&A, improving our productivity and quality, and maintaining our culture. I'll comment on each of these. First, organic growth. We have a diversified revenue model, but common across that are our client retention remains strong, new business is excellent, and our clients' underlying business activity continues to be positive. It is well known that insurance rates are currently contributing less to growth than they have over the past several years. Call it about a point of organic growth today is tied to rates. This reinforces that rates are just one part of the equation. The bigger drivers of organic growth continue to be new business, strong retention, exposure growth, as well as the diversity of our model across P&C, benefits, reinsurance, and claims. This shows our business performs well through a wide range of economic interest rate and insurance pricing environments. And we believe our diversified model and breadth of capabilities position us well to continue growing as the market conditions evolve. We're also benefiting from favorable macro tailwinds. The need for insurance is growing around the world, and risks are becoming more complex, thus requiring broader capabilities and more sophisticated solutions. Think about construction, infrastructure, energy, and data centers, as well as the growing need for clients to understand, mitigate, and insure emerging risks from AI, just to name a few examples. These are the areas where clients need more advice and deeper expertise. That plays directly to Gallagher's advisory strengths and creates a tailwind for durable organic growth. Let me go back to rates for a few minutes. Overall, we continue to see a very segmented P&C market. Property is competitive, casualty varies considerably by line and account, and there's plenty of capacity looking for attractive risks. Carriers want to grow, but they still need the right risks at the right returns. And for us, that creates opportunities to help clients navigate more choices and find the right solutions. Let me break this down by business. I'll start with our global retail P&C business. Property remains competitive, with renewal premiums declining 6% compared with down 10% in the second quarter. As we discussed in September, that sequential improvement largely reflects the mix and seasonality of renewals rather than a change in the underlying property market. However, casualty remained firmer overall. Even with competition slightly increasing, conditions still varied considerably by line, account, and geography. In the third quarter, casualty renewal premiums, which includes general liability, commercial auto, and umbrella, were up 4% overall. Professional lines, including D&O and cyber, were up 2%. Workers' comp was up 1%, personal lines was up 3%, and package was also up 3%. Excluding property, renewal premium changes increased 3% in the third quarter, with higher increases in the U.S. versus international markets. And it's important to remember, premium changes in Gallagher's revenues do not move one for one. Renewal premium changes include exposures, changes in limits, coverage, and mix, not just rate. In other words, as property pricing eases, we're seeing clients opting in and using the saving to buy back coverage, increase limits, or improve structure after several years of opting out and making difficult trade-offs. They're also revisiting how much risk they retain, what they transfer, and how they structure their overall programs. And that makes the value of our advice, advocacy, and market access even more important. In the U.S. excess and surplus, property remains very competitive, particularly cat-exposed property. But lower pricing doesn't necessarily mean the business leaves E&S. Rates are clearly down, but for us, our teams continue to win new business, helping to offset rate decline. Within casualty, capacity is increasing, but loss costs remain an important consideration, so conditions vary by line and risk. In this case, we continue to see tailwinds, rate tailwinds, and strong growth in casualty. In our renewal book, we are not seeing any meaningful movement back to the admitted market. We are seeing new business still using the E&S market at levels broadly consistent with what we saw over the last couple of years. This shows that it is a different marketplace today. For us, the E&S market is here to stay. It provides important capacity and deep expertise with flexibility on terms and creative structures. All that is critical to delivering customized solutions to our customers. We are seeing a similar story in London specialty. Competitive North American cat property has been more than offset by certain marine, aviation, and political violence risks. These risks remain more challenging, and they require careful structure and coordinated execution across markets. In reinsurance, the market has plenty of capacity. Property cat pricing remains competitive while casualty is more nuanced given loss cost trends. Reinsurance is another example where price is only one part of the story. New business, the amount of protection clients buy, and how they structure their programs all matter. Our expert capabilities across facultative, casualty, life, and capital advisory give Gallagher multiple ways to grow. Moving to employee benefits. We have seen solid organic growth in our core health and welfare business so far this year. But in the third quarter, however, a few larger consulting projects were pushed out as clients focused on controlling rapidly rising medical and prescription costs. Employers still want competitive benefits to attract and retain people, but managing those rapidly rising costs is their immediate priority. That is where our people really help, working side by side with clients to manage costs and keep their benefits competitive. Let me turn to Gallagher Bassett. It was another terrific quarter with organic growth of 10% driven by excellent new business and strong client retention. Our investments in GB are paying off in both growth and margins. Clients are benefiting from our expanded capabilities, deeper data, and more robust technology. Each of these improves our advice and service and helps drive better claim outcomes. Those investments, together with the depth and experience of our people, continue to strengthen GB's competitive position. With a good pipeline of opportunities, we feel terrific about where the business is positioned. Now a quick comment on what we are seeing in the economy. Our daily revenue indications from our clients' underlying insurance activity, such as audits, endorsements, and cancellations, have historically given us a good and practically real-time window into broader economic conditions. When I look at yesterday's report, those indicators continue to be nicely positive, pointing to solid business activity and steady underlying exposure growth. To wrap up my thoughts on organic growth, property pricing is moderating, and that is well understood. But property is only one part of our very large and very diverse business. Retention remains strong, new business is excellent, and client activity continues to be positive. As pricing changes, clients are buying more coverage, increasing limits, lowering deductibles, and turning to us for advice on how to structure their risk programs. Those are bigger drivers of organic growth, even as pricing continues to change. We also have a very diverse business. Our growth is not tied to one product, one geography, or one client segment. We have many ways to grow across P&C, benefits, reinsurance, and claims. We are large, yet we still have very little market share, and we operate in an industry where demand for advice, expertise, and risk solutions continues to expand. When I look forward, I remain confident in our 2026 full year organic growth outlook of approximately 6% for our combined brokerage and risk management segments. Looking to 2027, we see many of the same drivers: strong new business, excellent client retention, positive exposure growth, and our diversified business mix. Those support another year of strong organic growth. Now shifting to our second strategic pillar, mergers and acquisitions. We continue to see good opportunities, and as always, we're staying disciplined on strategic fit, culture, valuation, and returns. During the third quarter, we completed five new tuck-in acquisitions, representing approximately $100 million of estimated annualized revenue. That brings us to 21 so far this year, with approximately $225 million of estimated annualized revenue. Our pipeline remains active with over 30 term sheets signed or being prepared, representing around $300 million of annualized revenue. These mergers continue to add terrific people and capabilities across our businesses and geographies. AssuredPartners, Woodruff Sawyer, and dozens of others that have joined us are great examples of that strategy at work. We're connecting teams, sharing capabilities, and bringing Gallagher's tools, data, and expertise across the combined team. In turn, these mergers accelerate our opportunities for future organic growth as we become better together. To all of our new merger partners, I'd like to extend a very warm welcome to the Gallagher family of professionals. Turning to our third strategic pillar, continuously improving our productivity and quality. For more than two decades, we've been focused on improving productivity and quality through standardized workflows and a common data and digital strategy across the company and building out our Centers of Excellence. Today, our Centers of Excellence are 20,000 colleagues strong, and our goal has remained the same, reduce repetitive work, improve quality, and give our people more time to serve and advise clients. AI and automation helps to accelerate that journey and helps us capitalize on our scale. We're continuing to invest where it strengthens client service and growth while improving efficiency and margins over time. Let me wrap up with our fourth strategic pillar, our culture. We're a team first company. Our people help each other, share their expertise, and work together to do the right thing for our clients. That's what makes Gallagher special. As we grow, that matters even more. We're bringing new colleagues into Gallagher, giving them more people, more expertise, and more capabilities to help their clients and win new business. The 25 tenets of the Gallagher way guide how we work and how we treat one another. It's about serving our clients, supporting each other, and growing together. That's the Gallagher way. So another outstanding quarter behind us. Our strategy is working, our team is executing, and the opportunities ahead of Gallagher have never been greater. I'll stop now and turn it over to Doug to walk through the financial details. Doug? Thanks, Pat, and hello, everyone. We had a fantastic quarter. Nearly every metric was at or better than the outlook we provided at our September Investor Day. Incredible total revenue growth, strong organic growth, excellent margin expansion, and terrific earnings growth. Let's go to page one of the earnings release. Our two-pronged revenue growth strategy continued to deliver. When you do the math, you will see our combined brokerage and risk management segments posted adjusted revenue growth of 17%, adjusted EBITDA growth of 25%, and adjusted EPS growth of 26%. Then it gets even better when you levelize to remove the $76 million of interest income we earned in the third quarter 2025 on the funds we are holding to buy AssuredPartners. On that basis, adjusted revenues were up 20%, adjusted EBITDA grew 34%, adjusted EPS grew 37%, and adjusted EBITDA per share grew 35%. Like I said earlier, in a word, it is incredible. Flipping to page two, again, levelizing for the interest income earned on the funds held to buy AP for our combined brokerage and risk management segments, nine-month adjusted revenues were up 27%, adjusted EBITDA grew 32%, adjusted EPS grew 34%, and adjusted EBITDA per share grew 33%. The strength we are seeing is not just a one quarter story. I will call it a fantastic nine months, too. Let's move to page three. Brokerage organic growth was at 5% in the third quarter, right in line with our September IR day forecast and a strong result in a competitive pricing environment. We posted solid organic growth in our base commissions and fees, plus another strong quarter of combined supplemental and contingent revenue growth. Moving to the brokerage margin table at the top of page five, our adjusted EBITDA margin was 35.3% in the third quarter. At the upper end of the range, we noted on our September IR day. Headline margin expansion of 200 basis points, and the underlying expansion story is really terrific. I will unpack that a little bit more when we get to page seven of the CFO commentary document. Let's move now to the bottom of page five. Risk management organic growth was 10% in the third quarter, again, right in line with our September IR day forecast. It is another excellent quarter reflecting strong new business, excellent client retention, and continued momentum across Gallagher Bassett. When you flip over to page six, risk management third quarter adjusted EBITDA grew 17% with margin landing at 22.8%, up 90 basis points over last year. That reflects strong organic growth and continued operating efficiencies. Looking ahead, we see fourth quarter and full year 2026 adjusted EBITDA margin again north of 22%. That would cap off another very strong year for Gallagher Bassett. Flipping now to the corporate segment, on page seven, not really much here. Adjusted corporate results were a bit better than our September investor day outlook, but that is primarily because the non-cash unrealized FX loss came in smaller than estimated. When you turn to page seven, about halfway down, you will read that we repurchased about 400,000 shares for approximately $100 million in the third quarter. That brings repurchases to about $580 million through September 30th. Okay, let's leave the earnings release and turn to the CFO commentary document. This document includes details that can meaningfully affect your models, so I would encourage you to give it a careful look. Starting on page three, most third quarter items came in very close to what we provided in September. As you model the fourth quarter, please consider the FX impact and non-cash expenses as these have been updated to reflect the latest exchange rates. Turning to page four, a few business level organic growth highlights, then the outlook. Third quarter brokerage organic was 5%, meeting our September midpoint estimate. A few business level call-outs. Reinsurance growth was 7%, reflecting another quarter of strong new business and retention, more than overcoming the competitive pricing environment. Our U.K. and EMEIA businesses had a great quarter, which was somewhat benefited from lower risk premiums. Benefits did come in a bit below our September forecast. Most of that reflects a contingent commission true-up and the timing of several consulting projects that Pat mentioned earlier, and admittedly, little relates to some rounding in the percentages. Underlying core health and welfare growth remained solid and in line with our expectations. You will see on this page another outstanding quarter for Gallagher Bassett's third quarter coming in at 10% organic growth. Moving right on this page, our outlook. We continue to see fourth quarter and full year 2026 brokerage organic growth of around 5%. It is worth a quick reminder of what we discussed in September at our IR day. Fourth quarter brokerage organic will include AP for the first time. The math behind that inclusion gives you roughly only 20 to 25 basis points of headwind. That is another really good story here. Our early view of 2027 is also encouraging. Our early planning indicates legacy brokerage organic growth could look a lot like 2026, and it is also indicating that our early successes of being better together, the roll-in of AP is looking like maybe only impacting that by about 40 to 50 basis points for the full year 2027. As I provide all this information, please know we are assuming broadly similar market conditions in 2027 as we saw in 2026. One other soundbite here. Improving AP, AssuredPartners' base organic growth was not, and is still not included in our synergy assumptions. Progress towards Gallagher growth levels over the coming year to two years would represent additional upside. Moving down a few lines of the risk management segment, you will see our outlook remains strong. A 9% organic year would be another impressive result for Gallagher Bassett and reflects the momentum from our continued investments in the business. As for 2027, our early look at the pipeline suggests the momentum should continue. So 2027 also could look a lot like this year for Gallagher Bassett. Moving to the investment income table at the top of page five. Our fourth quarter investment income estimates reflect current exchange rates, estimated fiduciary cash balances, and the September rate increase. Staying on this page, but shifting down to the rollover revenue table. Third quarter rollover revenues came in pretty close to our estimates provided in September. For the fourth quarter, acquisitions closed through yesterday could add about $65 million to brokerage revenue and about $5 million to risk management revenues. You will also need to make a pick for future M&A. However, realize we are already well into the quarter, so practically speaking, that fourth quarter number shouldn't meaningfully increase all that much. This seems to be another place for the closer look in your models. Finally, as a reminder, fifth line up from the bottom, please remember to adjust the prior year revenue base for this divestiture and other line before applying your fourth quarter organic growth assumption. Let's turn over to talk about AssuredPartners on page 6. We discussed in our last few investor days that integration is progressing very well. There is no need to repeat today, other than to add that all back office systems are integrated and up and running, and by year end, close to half of AP's revenues will be up and running on their designated agency management system. That is great work by the team. Just a few call-outs from this page. AP did deliver $285 million of adjusted EBITDAC in the quarter. That is right in line with our September estimate. We remain on track for $160 million of annualized run rate synergies by year-end 2026, and that goes up to $325 million by early 2028. Just one modeling helper here. When I get to page 7 in a second, we give you our estimated fourth quarter margin expansion from AP synergies. So do not, again, add synergies from this page. If you do that, you will double count. Let's go now to page 7. This really shows the power of our model when it comes to our margins. First, underlying brokerage margins expanded 60 basis points in the quarter. That is at the top end of our September range. That is our vigilant work on process standardization, greater use of our Centers of Excellence, deploying technology and other productivity initiatives, all continuing to show up in our underlying results practically every quarter for the last five or more years. Second, AP added another 310 points of margin lift in the quarter. First line shows 220 basis points related to AP pre-synergies. Understand that 180 basis points of that relates to having full quarter of AP this year versus only a partial quarter of last year, third quarter. Then the next line shows another 90 basis points came from synergies. That is the integration work now showing up in our results. There is more ahead. As we look out to 2027, we see strong margin momentum and multiple levers to drive further improvement. Additional AP synergies, greater use of our lower cost Centers of Excellence, and continued technology and productivity initiatives. We are not just a revenue growth story, we are also a profitability growth story too. Let's move to page 8 to our corporate segment. Our fourth quarter outlook is very close to what we presented in September, and you will see again in the right lower box, it is just a reminder that we have $3.4 billion of future tax savings from tax credits and tax-deductible intangible amortization. That shows up in our cash flow statement rather than in the P&L. So for modeling, set your cash taxes paid at about 10% of EBITDAC, and that should get you close. Remember, those tax benefits give us more cash to put to work. Combined with cash on hand, expected free cash flow, and future investment-grade borrowings, we estimate more than $12 billion of acquisition capacity to deploy over the next two years. That is substantial capacity to continue executing our M&A strategy. Our pipeline remains strong and we stay disciplined on fit and price. We continue to favor M&A, but we will continue to repurchase shares opportunistically. Another great quarter across the businesses. We are on track for a terrific full year. We are growing organically, executing on a strong M&A pipeline. We are expanding margins, realizing the benefits of AP, and deploying our capital to create long-term shareholder value. We have good momentum heading into 2027, and we are very excited about what is ahead. Those are my comments. Back to you, Pat. Thanks, Doug. Sherry, I think we are ready for some questions and answers. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We ask that you please limit to one question and one follow-up question. Our first question is from Elyse Greenspan with Wells Fargo. Please proceed. Hi, thanks. Good evening. My first question, Pat, you said that you guys are generating, I think, around 1% organic in brokerage from the rating environment right now, right? When you think about 2027 and the pricing environment getting more competitive, when you guys say that you are looking for kind of a similar level of brokerage organic growth next year, are you assuming that 1% persists, or are you assuming maybe a little bit of a slowdown and then you get some additional contributions from some of the other factors that you mentioned, new business, retention, exposure, et cetera? No, I think the 1% will be consistent. Okay. My second question is on margin for next year. As we think about just synergies from AP coming on, organic growth, what seems like it might be within range of 5%, maybe a little bit of a headwind from AP brings that down a little bit. But how are you thinking about just the level of margin improvement that you guys could see next year? Is it back to baseline, Doug, and then put the synergies in on top, so 50 basis points on organic and then synergies, or how should we be thinking about that for 2027 for brokerage? I don't see it any different than we talked about before. I see margin expansion starting around that 4% range. If we're at 5%, you might see 50 to 75 basis points of expansion, and then you would get more synergies coming out of AP. We also have AI that we're starting to use. We also have other technologies. We're continuing to use our offshore Centers of Excellence. I feel pretty good about next year kind of looking like this year. Thank you. Thanks, Elyse. Our next question is from Mark Hughes with Truist Securities. Please proceed. Yeah. Thank you very much. Doug, the divestitures, the $73 million in the quarter, or what you expect for the fourth quarter, I'm sorry. Is that a little elevated or is that kind of something we should think about for a run rate? Yeah. Good catch on that, Mark. I probably should have baked that into my script. So this is a modeling helper that really helps you reset your baseline for last year. Let me break that down just from memory here a second. The easiest component to understand is we removed from last year in that number what we sold and is what is in runoff. Yes, it is a bit higher in the fourth quarter that we're showing here because when we bought AP, some of their business was already in runoff. And you know that from time to time, we also sell or run off some units too. Generally, that creates a book gain that we adjust out. We don't include that in our organic. So maybe in that $73 million, there's, call it, $25 million of runoff. I am going a little bit from memory here, of runoff and sold businesses. Then we also put in this line kind of the impact of 606 accounting in the prior year quarter. We do not have as much of that in Q4 2025. Maybe that was $15 million-$20 million of that number. We should not be applying organic growth to a non-recurring accounting adjustment, so we put that in that line. We do also put the large life. That is actually performing pretty well this year, but I think maybe in the fourth quarter last year, we had $10 million or $15 million of that. We have actually had a pretty good year in that business, particularly earlier in the year. But again, in order to level set your baseline for next year to apply organic growth, you need to kind of factor that out in terms of doing that. Then, of course, what we have been talking about, if I remember the fourth component of this, is that when we convert onto our AP systems. We are getting more granular around gross revenues and co-brokerage amounts that are netted against each other. So for apples to apples, there is an adjustment down in that number. It is not a big item. I think it is around $10 million. So you are right to highlight, I mentioned that in my script, but those are kind of the four components that come to mind that add up to that $73 million. Appreciate that. Anything on commission rates in the softer market if carriers are competing for premium? Is that good for you all? Well, listen, I think our supplementals and contingents are showing that the carriers value the volume and the good business that we give them. So we are not seeing compression in our base rates at all. Yeah. How about underlying commissions? My thought was maybe they are going up a little bit. No, I don't think so. We try hard at that, but right now we are okay. Commission rates are pretty steady, and what we do try to do is talk to customers about why we should take a pay cut and basically say, because we are very transparent on every dollar we make, we did a good job for you. Last year we made $10,000. If we stick with this, we are going to make $8,000. We would like to put a fee on it. And we sell that to some degree, but it's not across the board. Very good. Thank you. Thanks, Mark. Our next question is from Dean Criscitiello with Wolfe Research. Please proceed. Hi. Thanks for taking my question. When you guys announced the AP deal, you said there would be $160 million in run rate synergies with $60 million or a bit more than a third of that coming from revenue. Now your guidance today is for $325 million of run rate synergies, but I don't think you've split out the revenue and cost of that, so I was sort of hoping for an update on there. Then you guys sounded kind of bullish on some upside from the 325, so just curious what would get you to upside from that. Thanks. All right. Let's work backwards. Just remember, when we talk about we bought a really nice growing business in AssuredPartners, but it was running a point to a point and a half less than like for like business inside of Gallagher. Therein lies a big opportunity as the great producers inside of AP get our tools and capability. Over a 1-3 year period, our goal is to get that up so that it's performing at the same level as the producers inside of Gallagher overall. All right. We're on track for that. We also know that we can get some enhanced compensation as we start using the AP distribution force. It gives a great opportunity for our wholesalers and our binding and our programs folks to start calling on those folks. We'll pick up some there. But by and large, the revenue that we're talking about is the same in the $325 million number as it was when we did the secondary offer. We have not throttled revenue to get to that number. It's mostly in the expense line. Got it. That's helpful. Last 4Q, I know your organic. You had headwinds from the large life sales and the deferred revenue assumption changes. I know that's not in your guidance for this year, but curious if you expect that to be a tailwind to the reported organic number in 4Q. Well, no, it's not in our organic anymore the way we report it. I do not believe there's going to be a significant change in that accrual number when we come into the year, and I'll have an update on that. We update most of our 606 factors here basically beginning now. When we get together our December IR day, I'll be able to give you the impact of that, but it should not influence at all anything that you're seeing on page 4 in our organic growth numbers. Got it. Thank you. Our next question is from Mike Zaremski with BMO Capital Markets. Please proceed. Hey, thanks. Good afternoon. Maybe just a quick clarification on the organic growth outlook for brokerage. I think, Doug, you said that a 40 to 50 basis point impact for next year. Since we're going to be including AP in the full year next year, are we saying you're thinking it's the same as 26 on legacy, but then we minus 40 to 50 basis points to take into account AP? That's what I'm saying as we go into the year. I think that would be the level of a little bit of headwind. If AP continues to run in the 1.5 difference in organic than us, that would mathematically produce about a 40 to 50 basis point headwind in total Gallagher organic growth next year. Got it. That makes sense. I would say it's almost a rounding when you get down to it. Not to belabor, but AP's only been part of you guys for a short period of time. But would it be coming with AP's lower organic after a year or so of being with you all? Basically, it's not fully integrated, so there's new businesses running kind of below what you all as a legacy Gallagher are able to do, or is there another component? That's exactly right. Typically when we do acquisitions like this, those people with our tools, our capabilities, and our vertical or niche capabilities in particular see a nice lift. I think that they're slightly behind us in organic, and I think we will see a pickup. They're coming on to the tools and the capabilities as well as working together. We keep talking about we're better together. We're seeing that over and over. We're not going to sit here and give you a list of new production for the month or the year, but it's very strong and it's really exciting. I think that, to me, is one of the most exciting things about the whole deal is we are selling a lot of stuff together. Yeah, if you think about my timing-wise, we didn't close until August. By the time, and when that came up very quickly for us because we actually did push through the second request very quickly. We get it done, we get into the fall and start doing the Hearts and Minds campaign. That stretches into January and February. We have our sales conferences where we continue to roll out more tools. The tools are on their desks, but using that, the way I look at it from the CFO's desk, we've really only had the sales excitement going on for about 7 or 8 months. If you think about P&C business being and benefits being kind of an 18-month sales cycle, I think that we're just coming into our own on that. I think that 2027 and 2028, those are the test years to basically take these tools and bring them up to our level. I'm very excited about where we are right now, but understanding how this isn't a call center type operation where you increase advertising today and sales come in tomorrow. It takes a while, but we are getting really great feedback from the field on how these tools and capabilities can make them better. That's what we saw in the other 1,000 acquisitions that we've done over the last 20 years, too. It takes a while to learn it, get it up and running, and then leverage it. Got it. Just really quickly, reinsurance, you guys have continued to take market share. Great story there. You guys probably, your outlook is probably more bottom-up than top-down. But on a top-down level, if we were to say that the overall reinsurance marketplace was going to grow by 2-3 points less year-on-year 2027 versus 2026, do you think that would be taken into account in terms of your thought process on reinsurance next year, or you guys don't think about it that way? Oh, we don't think about it that way. I think one of the things about reinsurance, it's very chunky. These are big deals, and they have a life of their own, and our team is very, very good. We feel good about next year. Thank you. Our next question is from Andrew Kligerman with TD Cowen. Please proceed. Hey, good evening. This is a basic question, but it is important because I have been getting the question from investors, particularly newer ones. It is the question about differentiation as I see a number of your competitors, both private and public, starting to stumble in organic growth. Yet I look at Gallagher and year to date, it is just in brokerage, 5%, 5%, 5%, just solid all the way across. I know on this call you have touched on a bunch of stuff. Doug just said the words tools and capabilities. Pat, you were talking about productivity and quality with the digital and the Centers of Excellence, then you rounded it out with culture. But I hear that same kind of commentary from your competitors. Maybe there is something even more tangible that you could give me here when I get that question, because I have been getting it quite a bit amidst this softening market. All right. I will go out on a limb on this one, Andrew. I think that the differentiation is in the culture. I am the one guy that just if I do not get off the subject, they do not even go to the forum. But we had 600 interns last summer. I do not even know what the industry is doing, but nobody is even coming close to that. Year in, year out, bringing 600 people, young people in to learn about our business. We do not hire them all. We get a good percentage of the ones we want, and they are damn good. This idea that the younger generation cannot make it, they always need a trophy, that is just not even close. So that starts with that, ripples through the whole organization. We are brokers at our heart. We love to sell insurance. Everyone at this table today would jump on an airplane tomorrow to go sell an account. We know what we are talking about when it comes to that stuff. We live our global capabilities, and the team works together. I think it is just one of those things that we are very sales-oriented. We are working hard to keep our pipeline up. We understand the sales game. We are not overcomplicating it. If you do not get in front of people, you do not make sales. If you get in front of people and you got a good story to tell about how you can actually help them, then you have a better than odds on chance. I will tell you, our tools, when I started a long time ago, our hit ratio was probably high 20s, low 30s on our opportunities we went out the door to propose. I would say 10 years ago, that was probably the same, too. With our tools today, we have empirical evidence that if you will use the tools, those hit ratios are moving over 40% and up towards 50. That just tells you the power of the tools combined with the power of the structure, and by that I mean our vertical capabilities, and then the culture to work together. I haven't had to get involved in a commission split argument in over 10 years. It just works. Guess what? We have fun doing it. Got it. So the A+ team in the major leagues. I would like to know about M&A as my second question. You talked about a $300 million pipeline, and I would like you to square it with what I have been hearing that M&A in the brokerage area is starting to slow down. Yeah, I think it is starting to slow down, and frankly, that $300 million is probably off with the numbers that we have told you in past years. The fact is, you have got a group of entrepreneurs out there that do not have to sell. They do a very good job of making money for their family. You do not need to have a $100 million agency to do that. Clearly, multiples are down. Pressure on revenues. There is not as much demand for those properties. I think that there is just a typical lull. Now, if the tax law begins to look like it might change, if in fact, the aging population realizes that they have got to do something for their people and to capitalize their asset, we will be back into what we saw in 2006, 2007, 2008, 2009, 2010, with people who are out there helping them come to grips with the fact that this is not going to change back to the 18, 19 multiples overnight. You are not going to be able to babysit this thing and then end up getting the growth that you want. Let us get together and build it together. But that is going to take some time. Now, at the same time, there are still lots of opportunities. When we did the AssuredPartners deal, there were about 300 or more acquisitions they did. You will recall that we had looked at 6% of those. 94%, we never got a call in the race. One year, 15 months after that acquisition, I have met thousands of their people. Not hundreds, thousands. I am telling you, they all fit in this organization. It is incredible. They are salespeople. They love taking care of their clients. We would have done those deals. We just have to be better at getting out and telling our story. I think when we do that, we compete very well. Great. Very helpful. Thank you. Thanks, Andrew. Our next question is from Greg Peters with Raymond James. Please proceed. Hey, good afternoon. Pat, every quarter and every management meeting, you give us an update on endorsements and audits as sort of an indicator of what the underlying health of the businesses your clients look like. Could you spend a second and just give us I think you said nicely positive for what you're seeing most recently. Can you give us a sort of snapshot of how that's trended this year versus last year? Is it keeping pace? Is it down a little bit? Is it up a little bit? Just sort of the cadence of what's going on there. Doug's got the sheet in front of him. I'll let him take it. Boy, I need glasses for it, too. All right. Here is the way to think about it. If you think on a quarter-by-quarter basis, right? in 2025, let us just say first quarter was X. First quarter of 2026, it is X. If I do that again, the second quarter, it is X, then the second quarter of 2026, it was 150% of X. Let me go back to the first quarter. Sorry, I picked a bad number. First quarter, it was 85% of X. Second quarter is 150% of X. Third quarter here, it is almost 2X, guys. I mean, we are seeing the positive trend in the last couple of quarters. The net of all this together, it is still very positive, and it is still. Now, does it move our organic at all in terms of these numbers? No. I am saying the indications when you add it all up, and that is kind of globally. I could probably go down by division. Let me work on that a little bit more and maybe give you a vignette in December. But it is pretty telling, and it has been pretty consistent. When the world was saying that there was a recession coming, we weren't seeing it. And our clients' activity is a terrific, almost daily indicator of what is happening with our. And remember, this is our middle market. Yes. This is not personal lines and that. It wouldn't be that. The fee-based clients wouldn't be necessarily as big in here, but this is our core business, and I think that the health around the world is based in that mid-market bucket. Thus far, pretty damn good correlations, in my opinion. Yeah. And just to clarify, this is middle market globally for your business, but it has got to skew heavily towards North America. Is that correct? Yeah. That's what we have at like for like. We get rid of the stuff that isn't like for like, but yes, we scrape this. We've got a single global data collection strategy, and this is what we're getting from our agency management systems around the world. That's primarily Canada, the U.K., Australia, New Zealand, and the U.S. Yeah. Great. The other question, just getting back to your record of expanding margins and at the September management meeting, you rolled out the concept of using technology, I think, to get a gross margin expansion of 600 after 200 of spend, maybe net 400 basis points of margin expansion over the three to five years. Then you're talking about AP raising it. Is part of that margin expansion inside AP part of this bigger tech initiative that you were thinking about? Or maybe you can just help square the two different programs. AP synergies that provide you have very little impact from technology. Right? The AP, you got to kind of level set for AP, and then we'll be on our margin journey that between technologies and everything, we'll do that. I would say there's very little duplication in that. Thank you for the clarification. Thanks, Greg. Our next question is from Yaron Kinar with Mizuho Securities. Please proceed. Thank you. Good evening. First question, I apologize in advance. It may be a little bit of a nitpicky one, but when I look at the AssuredPartners organic, I think like a quarter ago in 2Q, you talked about roughly 4%. Then in the investor meeting last month, you were talking about 3.5% to 4%. Now it sounds like it is 3.5%. Can you maybe talk about what is driving the pressure relative to expectations only a quarter ago? I think it is just quarter-by-quarter mix of the business, Yaron. I would not say that there is any. There is no systemic shift in what the producers in AP are facing today versus what they were facing before. Again, you said that it was a nitpicky question. I do not believe it is. I think it is a fair question, but I think it is a pretty small differential. If you think about Okay $2.9 billion, a point and a half difference on $3.5 billion. Let's just say they revert to Gallagher, right? We get an extra point and a half of organic. That's $50 million more in revenue. Let's say we make 30 points on it, that's $15 million of EBITDA. Compared to a $5.5 or $6 billion company next year on EBITDA, it's a pretty small incremental. I think what it does is it signals more of giving producers a better home to toil and take care of their clients. For me, giving it up to Gallagher is not really a financial huge win for us. What it is, it's a cultural win. It proves that we can be better together. For me, that journey is as much about getting the culture right as it is to drop another $15 million of profit into the business. Right. So kind of as you think about it that way, whether it's one quarter, it's a half a point different on $700 million, it's $3.5 million if I'm doing the mental math here on that. Right? But on the quarter, I thought that the commentary you provided earlier was really about maybe the headwind that we can see for full year 2027. So that wouldn't be a quarterly issue, that's an annual. I just think that if when you roll in AP into us next year, maybe if we didn't have AP, what we report by organic growth would be 40 basis points higher. On the other hand, we'd be missing $1.3 or $1.4 billion of EBITA, too. Yeah. It's a pretty good trade-off. Sure At a multiple we thought was really a fair and reasonable multiple to pay for a business like AssuredPartners. This is a terrific acquisition. Remember, we buy EBITDAC growth. We don't buy necessarily revenue growth. I know you guys think about it a little bit differently from time to time. No, all fair. My second question, going to page 4 of the organic revenue breakdown. Just looking at the sequential change from third quarter numbers to fourth quarter expectations, see a bit of a slowdown in international brokerage, acceleration in reinsurance, and a rebound in benefits brokerage. Can you maybe quickly touch on what is driving the expectations for the changes sequentially? All right. Let me catch up. Just say your question again. Yeah. If we look at that Why the excitement in international, is that what your question? Well, we are seeing a bit of a slowdown, right? From third quarter to fourth quarter, from 9% and 6% in the third quarter for the two international regions, down to approximately 3%. Against that, you have seen acceleration in reinsurance from 7% going up to 11%. Yeah. I understand your question now. I think that one of the things about it is that you got to look at like the Aero business and that business is sometimes there will be 18-month policies versus year policies. We are getting some good lift offsetting those 18. I think we had a handful of 18-month policies back in 2025, if I remember right, in the Aero business. But I would not say that there is any different in excitement. I think what is going on, and I think this is where value comes into play. When you are talking about war risk, when you are talking about marine hull, when you are talking about aviation, it is a complicated business, and our pros are pros. And I got to tell you, the fact that if they write an 18-month policy in one year and it is a 12-month in another, that can have a little bit of impact. But these guys are doing a very good job, and we are benefiting a little bit with war risk premiums. We didn't really assume all that much for the fourth quarter. We were kind of hoping for some peace there. So who knows? Maybe we'll get a positive surprise on that. I hope you're right. Our next question is from David Motemaden with Evercore ISI. Please proceed. Hey, thanks. Good evening. I just wanted to circle back to the rates contributing a point to the brokerage organic growth this year and the expectation for that to continue next year. Yeah. I guess, I'm just curious, what is the level of pure rate that is contributing to that point? The level of what? Sorry, you just broke up, David. What is the level of pure rate that is driving that one point to organic growth? You're saying pure rates. You're asking about if we look at what rate was this year all in aggregate, and we know that it decreased, especially in property, right? Cat-exposed property. Are you asking how much have we assumed another step down in that next year? Is that what Yeah. I guess what I am trying to get at is, let us just say, you gave the RPC, that obviously includes exposure. If I look at RPC, ex-property is 3, and I assume that, like, hey, that maybe means rates is 1 within that, and that is driving 1 point of growth. Is it linear? If rates were to go down again from 1 to 0 or to negative 1, how much of an impact could that have on the organic? I am just trying to figure out at what point does that rate contribution, the 1 point to organic growth, at what point does that flip to be 0 or actually become a drag to growth? David, that is a really tough one. As we have said in our prepared comments, what is going on with the rates do not directly relate to what happens to our revenue. Are people going to buy more insurance? We are trying to make sure that happens. We have got inflation in the country. Inflation actually bumps all those exposure units up. What has to happen to get rates to 0? Well, if the casualty market falls on its face and goes the way of the cat property market, there will be a drag. But at this time, it does not look like that. If anything, it seems like property is bottoming out. People do have good business going. They are buying buildings, and those buildings are going up in value. It is hard to answer you when you get as detailed as 1 percentage point, which relates to the fact that pricing in general is going up. If that pricing drops and goes from rising 3% ex-cat property to falling 3%, it will probably be a drag. Okay. That is helpful. But, it is just hard to answer because it is not directly alignable. Yeah. No, I hear you. Thought it was worth a shot, though. I guess my follow-up question is just, you spoke about the consulting business getting delayed within benefits. I guess I am wondering how much of a drag that had on the organic this quarter. I think you guys had been sort of lowering that expectation for third quarter benefits organic in July and then September. But if we were to think about that consulting business just not coming back, I guess how much of a drag could that be if we think about next year? All right. The way we look at it is this. First, let us explain why. Right now, rapid inflation is consuming all the time for human resource leaders and CFOs as they are trying to figure out their rates and what they are going to pay for their insurance next year. They are going to have to decide how much they pass along of that rapidly rising inflation to their employees. It keeps them from looking at other voluntary benefit opportunities. It keeps them from looking for health and welfare opportunities for their employees. It keeps them from looking at how to recruit and retain people better. So that is the reason why, is that there is a distraction because medical inflation has skyrocketed from what employers are seeing over the last six to nine months. The fact is, and then really right now as people are doing their 2026 picks, the last 60 days, it is really coming to bear as the actuarial studies show that. So what is that mean? Okay, maybe there is $4 million of consulting projects that got deferred. We hope to see that in the fourth quarter or the first quarter of next year as we come into next year. There were a couple large projects, call that another $2 million or $3 million. So the nature of this, as we are talking about, even if you threw a hat over and said it is $10 million of revenue differential in a quarter, the profit on that is $3 million, something like that. So it is not a huge impact to our profitability, and it is timing, in my opinion. Now, the timing is at fourth quarter, is it first or second quarter next year? We will see. But we right now, our professionals are doing a great job helping our HR and CFO folks figure out their benefit costs, and that naturally distracts them from doing other projects. I do not know if that helps you dimension it a little bit, but I wanted to make sure you understand the why again. Yeah, that makes sense. Yeah, that is pretty small. I guess maybe if I could just sneak one. I realize one other thing, and I am sorry. Our first quarter is our largest quarter, right, when it comes to benefits. So the amount of revenue that we recognize in the third and fourth quarters is dramatically smaller than full year. We think the full year number is a better number to take a look at necessarily than necessarily quarter-over-quarter. And in this quarter, there was a few million dollar contingent commission that we did not hit because of volume levels, too. So there was a little noise in that. Right. Okay, that is helpful. And then if I could just sneak one more in on Gallagher Bassett. About 60%, I believe, of that business is from workers' comp, and I guess I am just wondering what you guys are seeing on a frequency basis, exposure adjusted. What you guys are seeing in that book. So frequency in our book for our clients, because of our loss control, is not up dramatically. We are teaching our employers to keep accidents from happening, and that loss control unit has been very successful. Like-for-like, yeah, frequency is up. For others, it is up. When it comes to the inflation, the gross number of medical costs is impacting, but many times workers' comp is controlled on how much medical costs can be passed along on those cases. We do not pay that pays out of the file. Frequency in our book of business is stable. It is not declining, but you are not seeing like. But across the industry, frequency on workers' comp is up in the U.S. Great. Thank you. Our next question is from Alex Scott with Barclays. Please proceed. Thank you for squeezing me in. This is Justin on for Alex. My first question, I wanted to ask about your new business opportunity. You mentioned that clients are buying more coverage as pricing is coming down. As we think about sustaining organic growth into 2027, maybe there were some additional opportunities to expand relationships with existing clients. I was just wondering if you can kind of help us break down new business into the opportunities you see in terms of expanding relationships with existing clients versus winning new logos and how you are positioning your producers to capture both. Scott, I do not have a number on that, but let me tell you how it works. We look every single account at what we call white space. What do we provide an account? Every study going back 100 years will tell every industry that if we are doing one line, we have less of a chance to retain that account. If we do three, four, five, six lines of cover, we are going to get stronger and stronger retention. Every single account we look at, what is the white space? What are they doing with someone else? Who is that somebody else? Literally, less than 15% of the time when we compete, we are competing with our peers of the same size. I will put a name on it. We compete with Marsh & Willis about 10% of the time, maybe 12. 80-plus percent of the time, that white space is held by somebody that's not Gallagher. I am telling you, there is not a line, there is not an industry, there is not a geography that we are not tougher than the incumbent. Do we get that business every time? No. Of course, we are a new business machine, and that is just straightforward marketing efforts. We put campaigns out, thousands of contacts every week by very specific areas that we have expertise. We have webinars, people come to those. We record that in Salesforce, which we call Gallagher WIN, and we watch that business come through the pipeline. I feel really good about our velocity in terms of what we write against what was written last year. I feel very good about our capability of closing accounts out. Do we win them all? No. As I said earlier, our hit ratio is improving, but I cannot give you a number that five comes from this and six comes from that, and it all adds up to seven. One thing I will say, in a non-chaotic market, we can show our wares better. When it is a chaotic market of going up 20%, 30% always, it is hard to have a client sit there and say, "Let us talk about your risk score." When things are more stable, it gives us an opportunity to prove that you get more from Gallagher than you do from where your incumbent broker is. The tools and capabilities that we have in a non-chaotic rate environment are easier to show, and I believe that leads to a higher new business win. Understood. Thank you for the color. Maybe just a quick follow-up, perhaps around headcount. I did notice that you guys posted that number in the release, and it seems like most of the increase came from the Centers of Excellence. I was just wondering, maybe as we look into 2027, if we should expect the same composition of headcount year-over-year changes across people on the business side versus folks on the COE side? Here is the thing. I think first and foremost, I think the comp ratio is a better number to look at than headcount. I think the headcount per dollar of revenue is a little bit of an antiquated measure, maybe across the industry, but certainly at Gallagher. As we use our offshore Centers of Excellence, it is a compensation ratio number that is better than headcount. Yes, I think that one of the things that you can see is if you look at Gallagher Bassett, their headcount is growing because of acquisitions, call it a couple hundred. Their net hires are around 500, which is a lesser number. That growth against the base is less than the organic growth. You can take a look at that. When you look at the brokerage headcount, we acquired maybe about 1,500 people since September of last year. I don't know exactly what numbers that you're taking a look at. Then we've also had almost a direct correlation between as attrition in our middle and back office happens, we tend to hire in our offshore Centers of Excellence. That's almost a head-per-head type basis. So you're looking at something very smart. I think that the juggernaut that we have in our offshore Centers of Excellence, those are our folks. They only work on our clients and our business. I think that is an amazing story, and that's what enables us to deploy consistent data expectations around the world. So that's how we get the information to be consistent. That's how we can deploy AI into the business and further leverage what we're doing here onshore to make our folks better informed at the point of sale and renewal. You want to see that offshore number increasing, and I think that it shows that the investments we've made over 20 years, just every year, step by step, building that center out, it is an impressive series of operations that I think we have more CPCUs in our offshore Centers of Excellence than we do aggregate around the rest of the country. So it is an impressive and, I'd say, strategically important asset for us to have. Good. Thank you. Our final question comes from Meyer Shields with KBW. Please proceed. Great. Thanks so much. I only have one question. I know we're not seeing it at all in the specialty organic growth numbers, but behind the scenes, is there any trend of admitted markets coming back and taking business out of the E&S channel? All right. Listen, I think in Pat's prepared remarks, it's interesting. In our renewal book of business, right now, the answer is no. If Gallagher retailer is putting the business in, is selling the business, they're using the E&S markets equal to what they were in the past. Here's why. E&S isn't the market of last resort anymore. It is a different market today than it was in the last soft market. Sure, there are some small business that will whipsaw, kind of the tail of the dog, but when you get to the actual purpose of what E&S is, it offers creativity. It offers solutions. It gives our middle-market customers access to different sources of expert capital. We're seeing that our retailers value that. You're also seeing it on the supply side that carriers, many carriers have an E&S carrier. They're not all that excited about pulling that business back into their admitted carrier. We're not seeing the supply side encouraging it. The demand is still there for the creativity of it. We're not seeing it. New business submissions, still about the same percentage, maybe 5% less, something like that, is going to the E&S market than before. The E&S market is here to stay. It is an important source of capital and risk-taking capital in the market. We're just not seeing the migration back into the admitted carriers in our book, and then also in, we do trade with a lot of smaller agents and brokers out there, and they're still receptive to using the E&S market. I think also, we're getting the benefit of the AP Woodruff Sawyer and the deals we've done. These new partners have embraced RPS in particular, and we're seeing great submission activity that came. Those firms did not have the same restrictions on using a whole host of outside brokers. You might recall, years ago, we consolidated down to five wholesalers, four wholesalers, and these people have embraced that, and RPS wins a very big chunk of that. Not only is it sticky, and also remember, a lot of these are specialty programs. When we put something together, we created a facility called ADAPT, and it does shared and layer coverage around the country, around the world. That is a very sticky proposition. If you put it into one of our facilities or an ADAPT program where we negotiated better rates but also better cover, those are not programs that you lose business in. I think there is a change in how that market's reacting to the renewals. Okay. That was very helpful. Thank you so much. Well, good. I think we're at the end of questions here, and I appreciate your being here today. It's been a lot of good questions. I really think reminding everyone, we just had a great quarter, and thank you for being with us to listen to it. We feel terrific about the future. We've got plenty of opportunities ahead, and I couldn't be prouder of the team. A year ago right now, we spent $13 billion and brought 11,000 new colleagues into the business with $3 billion in revenue, and it's performing beyond our expectation. My grandfather opened our agency in Chicago in 1927. Today, we're 74,000 colleagues strong, serving clients in more than 130 countries. We got here because our colleagues, year after year, did the right thing for clients and for each other. In 2027 will be our 100th anniversary, and we're going to celebrate that. We're going to celebrate the people that built it, and we're going to celebrate it all year long. Not many companies get to say that they turned 100. Really, to all our colleagues around the world that I hope are listening to this, thank you for everything you do for your clients and for each other. That's what makes Gallagher special. That is the Gallagher way. Thank you for being with us today, and have a good evening. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.