Arthur J. Gallagher (AJG) Q3 2026 Earnings Call: Q&A Summary

Q: Elyse Greenspan from Wells Fargo asked if the 1% organic growth contribution from rates is assumed to persist into 2027.

A: J. Gallagher, Chairman and CEO, answered that the 1% rate contribution will be consistent.

Q: Elyse Greenspan from Wells Fargo asked how to think about the level of margin improvement for next year regarding organic growth and synergies.

A: Douglas Howell, CFO, stated that margin expansion would start around the 4% range, with 50 to 75 basis points of expansion on 5% organic growth, plus additional synergies from AssuredPartners, AI, and offshore centers of excellence.

Q: Mark Hughes from Truist Securities asked if the $73 million divestiture and runoff figure expected for the fourth quarter is elevated or represents a run rate.

A: Douglas Howell, CFO, explained the four components making up the $73 million, including runoffs, sold businesses, 606 accounting adjustments, and gross revenue netting on AssuredPartners systems.

Q: Mark Hughes from Truist Securities asked if commission rates in the software market are compressing or increasing.

A: Douglas Howell, CFO, stated that base rates are not seeing compression and supplementals and contingents show carriers value their volume. J. Gallagher, Chairman and CEO, added that commission rates are steady and transparent fees are used where appropriate.

Q: Dean Criscitiello from Wolfe Research asked for an update on the revenue and cost split of the $325 million in run rate synergies for AssuredPartners.

A: Douglas Howell, CFO, explained that the revenue component remains the same as previously stated and most of the $325 million is in the expense line, driven by bringing AssuredPartners producers up to Gallagher productivity levels over time.

Q: Dean Criscitiello from Wolfe Research asked if large life sales and deferred revenue assumption changes from last fourth quarter will be a tailwind to reported organic growth in the fourth quarter.

A: Douglas Howell, CFO, answered that it is no longer in organic growth the way it is reported and will not influence the Page 4 organic growth numbers.

Q: Michael Zaremski from BMO Capital Markets asked for clarification on the 40 to 50 basis point organic growth headwind for next year related to AssuredPartners.

A: Douglas Howell, CFO, confirmed that if AssuredPartners continues to run 1 to 1.5 points lower in organic growth than legacy Gallagher, it mathematically produces a 40 to 50 basis point headwind in total Gallagher organic growth.

Q: Michael Zaremski from BMO Capital Markets asked if a slower top-down reinsurance marketplace growth rate of 2 to 3 points less year-on-year would impact reinsurance expectations for next year.

A: J. Gallagher, Chairman and CEO, stated they do not think about it that way because reinsurance deals are chunky, have a life of their own, and the team is very strong.

Q: Andrew Kligerman from TD Cowen asked for tangible differentiators driving Gallagher's consistent organic growth compared to peers, and asked to square the $300 million M&A pipeline with slowing brokerage M&A.

A: J. Gallagher, Chairman and CEO, pointed to company culture, young recruiting pipelines, sales orientation, and proprietary tools that improve hit ratios to over 40%. Regarding M&A, he noted that multiples are down and some entrepreneurs are pausing, but Gallagher's pipeline remains active and AssuredPartners integration offers vast internal acquisition opportunities.

Q: Charles Peters from Raymond James asked for a snapshot of how daily revenue indicators like audits and endorsements have trended this year versus last year.

A: Douglas Howell, CFO, explained that sequential indicators have shown positive trends, rising from previous quarters, indicating solid health and steady exposure growth in the middle market.

Q: Yaron Kinar from Mizuho Securities asked what is driving the slight downward pressure on AssuredPartners organic growth expectations from 4% down to 3.5%.

A: Douglas Howell, CFO, answered that it is simply a quarter-by-quarter mix of business with no systemic shift, emphasizing that AssuredPartners acquisition is primarily about buying EBITDA growth and cultural alignment.

Q: Yaron Kinar from Mizuho Securities asked what is driving the sequential change in international brokerage slowing down versus reinsurance accelerating in the fourth quarter.

A: Douglas Howell, CFO, explained that timing factors like 18-month versus 12-month policies in the aerospace business can create quarterly shifts, and noted they are benefiting from more risk premiums in specialty areas.

Q: David Motemaden from Evercore ISI asked at what point the 1 point rate contribution to organic growth flips to zero or becomes a drag if rates drop further.

A: J. Gallagher, Chairman and CEO, responded that pricing changes do not directly align with revenue because clients buy more insurance and inflation bumps up exposure units, making it difficult to predict a direct drag.

Q: David Motemaden from Evercore ISI asked about the impact of delayed consulting projects in the benefits business and whether it could be a drag next year.

A: Douglas Howell, CFO, explained that human resource leaders are currently distracted by rapidly rising medical and prescription cost inflation, causing a temporary deferral of about $4 million in consulting projects that should return in future quarters with minimal profit impact.

Q: David Motemaden from Evercore ISI asked what Gallagher Bassett is seeing on a frequency basis in workers' compensation.

A: Douglas Howell, CFO, stated that client frequency is stable due to successful loss control programs, even though medical inflation impacts gross costs.

Q: Justin from Barclays asked how producers are positioned to capture new business through expanding relationships with existing clients versus winning new logos.

A: J. Gallagher, Chairman and CEO, explained that every account is analyzed for white space across multiple coverage lines to increase retention and win new business through targeted marketing campaigns and software tools.

Q: Justin from Barclays asked if headcount trends in offshore centers of excellence versus the business side will look similar in 2027.

A: Douglas Howell, CFO, explained that compensation ratios are better measures than headcount, noting that attrition in middle and back offices is steadily replaced head-for-head in offshore centers of excellence, which are strategically vital for consistency and technology deployment.

Q: Meyer Shields from KBW asked if there is any trend of admitted markets coming back and taking business out of the E&S channel behind the scenes.

A: Douglas Howell, CFO, stated that renewal books show no meaningful movement back to the admitted market because E&S provides vital creativity, solutions, and expert capital, while carriers with E&S arms have little incentive to pull business back.