CFO Commentary September 18, 2025 Arthur J. Gallagher & Co. Forward-Looking Statements and Non-GAAP Measures Information Concerning Forward-Looking Statements This CFO Commentary contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this CFO Commentary, the words "anticipates," "believes," "contemplates," "see," "should," "could," "will," "estimates," "expects," "intends," "plans" and variations thereof and similar expressions, are int ...

Group 1 - Sands Capital Select Growth Strategy reported a strong quarterly performance with a return of 27.7%, significantly outperforming the Russell 1000 Growth Index which gained 17.8% [1] - The positive performance was attributed to factors such as muted inflation, strong corporate earnings, and improving sentiment around artificial intelligence and global trade [1] Group 2 - Arthur J. Gallagher & Co. (NYSE:AJG) is highlighted as a key stock, being the largest middle-market commercial insurance broker in the U.S. by revenue [3] - AJG's stock experienced a one-month return of -3.85% and a 52-week decline of 2.21%, closing at $289.40 per share with a market capitalization of $74.191 billion as of September 15, 2025 [2] - Despite a 5% year-over-year decline in commercial property rates, AJG achieved organic growth of 9.5%, outperforming peers due to strong execution in its brokerage segment and strategic reinsurance placements [3] - The company has been active in its acquisition strategy, closing approximately $400 million in deals year to date and maintaining momentum for its planned AssuredPartners acquisition [3]

Industry Overview - The Zacks Insurance Brokerage industry is expected to benefit from better pricing, prudent underwriting, rising demand for insurance products, and global expansion, driving revenues [1] - The global insurance brokerage market size is currently $328.47 billion in 2025 and is anticipated to reach $480.66 billion by 2030, witnessing a 9.47% CAGR during this period [3] - Increased digitization is expected to improve operational efficiencies and scale within the industry [2] Trends Impacting the Industry - Increased demand for insurance products is driving revenues, with industry players expanding globally and improving pricing and underwriting standards [4] - The aging population is increasing demand for retirement benefit products, while millennials and baby boomers are boosting demand for various insurance types [5] - The industry is witnessing fast-paced consolidation, driven by mergers and acquisitions, with private equity interest and competition being key factors [6] Technological Advancements - Insurance brokers are adopting digital tools for policy management and claims processing, enhancing customer interactions [7] - The integration of technologies like AI, machine learning, and blockchain is expected to improve operational efficiency and risk assessment [8] Company Performance - Brown & Brown (BRO) has a market capitalization of $31.45 billion, with earnings growth of 21.5% over the past five years and expected long-term growth of 10.6% [20][21] - Marsh & McLennan (MMC) has a market capitalization of $100.02 billion, with earnings growth of 13.4% over the past five years and expected long-term growth of 8.3% [24][25] - Arthur J. Gallagher (AJG) has a market capitalization of $76.68 billion, with earnings growth of 20.4% over the past five years and expected long-term growth of 8.8% [29][31] - Willis Towers Watson (WTW) has a market capitalization of $32.40 billion, with earnings growth of 9.4% over the past five years and expected long-term growth of 7.5% [34][35] Market Performance - The Insurance Brokerage industry has underperformed its sector and the S&P 500, with a loss of 17.6% over the past year compared to the Finance sector's growth of 18.8% and the S&P 500's appreciation of 19.9% [13] - The industry's Zacks Industry Rank is 160, placing it in the bottom 35% of over 245 Zacks industries, reflecting a negative earnings outlook [10][11]

Group 1 - The stock of Arthur J. Gallagher & Co. (AJG) is experiencing significant attention due to high implied volatility in the options market, particularly for the Oct 17, 2025 $175.00 Call option [1] - Implied volatility indicates the market's expectation of future price movement, suggesting that investors anticipate a significant change in the stock's price, potentially due to an upcoming event [2] - Arthur J. Gallagher currently holds a Zacks Rank 3 (Hold) in the Insurance - Brokerage industry, which is positioned in the bottom 35% of the Zacks Industry Rank [3] Group 2 - The high implied volatility may indicate a developing trading opportunity, as options traders often seek to sell premium on options with elevated implied volatility to benefit from time decay [4] - The Zacks Consensus Estimate for Arthur J. Gallagher's current quarter has increased from $2.38 per share to $2.41 over the last 60 days, reflecting a slight positive adjustment in earnings expectations [3]

Core Insights - The Brokerage segment is essential to Arthur J. Gallagher & Co.'s (AJG) business, contributing significantly to revenues and profits, providing stability across insurance cycles and supporting long-term performance [1][8] Growth Drivers - Future growth in the Brokerage segment is fueled by consistent new business production, disciplined acquisitions, enhanced brand visibility, and investments in technology and data analytics, which improve efficiency and client retention [2][8] - Successful integration of acquired firms has created synergies and a stronger platform for compounded growth over time, reinforcing the segment's importance to AJG's long-term trajectory [2] Financial Performance - In the first half of 2025, Brokerage revenues increased by 17% year over year to $6.1 billion, with organic growth of 7.6%. Adjusted EBITDAC rose by 28% to $2.45 billion, and margins expanded by 350 basis points to 40.2% [3] - These financial results highlight the Brokerage segment's role in AJG's profitability and shareholder value creation [3] Peer Comparison - The Wholesale Brokerage segment is crucial for Brown & Brown, Inc. (BRO), providing resilient revenue streams through specialized markets and acquisition-driven expansion [4] - Willis Towers Watson Public Limited Company's (WTW) Risk & Broking segment enhances client outcomes through data-driven analytics, supporting durable revenue growth and competitive positioning [5] Valuation and Estimates - AJG's shares have gained 7% year to date, compared to the industry's growth of 9.2% [6] - AJG trades at a forward price-to-earnings ratio of 23.9, above the industry average of 20.58 [9] - The Zacks Consensus Estimate for AJG's 2025 earnings implies an 8.8% growth year over year, followed by a 23.2% increase next year [10]

Core Viewpoint - Arthur J. Gallagher & Co. (AJG) is experiencing a short-term bearish trend as it trades below its 50-day simple moving average (SMA), which is a key indicator for identifying support and resistance levels [1] Price Performance - AJG shares have increased by 6.1% year-to-date, contrasting with a 13.9% decline in the industry. The Finance sector and the Zacks S&P 500 Composite have risen by 10.7% and 9.6%, respectively, during the same period [2] - The market capitalization of AJG stands at $77.2 billion, with an average trading volume of 1.5 million shares over the last three months [2] Valuation Metrics - AJG shares are trading at a price-to-book value of 3.35X, which is lower than the industry average of 4.31X, indicating that the shares are affordable compared to peers [4] Growth Projections - AJG has posted a 15% revenue compound annual growth rate (CAGR) from 2019 to 2024, with margins expanding to 33.3%. The company has completed 770 acquisitions since 2002, contributing to its inorganic growth [8][15] - The Zacks Consensus Estimate for 2025 revenues is $13.7 billion, reflecting a year-over-year increase of 20.8%. Current-year earnings are estimated at $10.98 per share, suggesting an 8.8% growth from the previous year [9] - Analysts project a 23% increase in earnings per share and a 22.8% increase in revenues for 2026 [9] Analyst Sentiment - Analysts have recently lowered their estimates for 2025 earnings, with a 0.2% decrease in the past week and a 0.1% decrease over the past month [11] Operational Insights - AJG's organic growth is expected to be between 6% and 8% in both the Brokerage and Risk Management segments for 2025, with an adjusted EBITDAC margin of 20.5% [14] - The company’s international operations currently account for about one-third of its revenues, with expectations for further growth in this area [16] Profitability Challenges - Rising expenses have impacted AJG's profitability, with net margin declining to 10.9% in Q2 2025 from 13.3% year-over-year [17] - Total debt has reached $13 billion, with a debt-to-capital ratio of 35.87, which is favorable compared to the industry average of 50.12 [18] - Return on equity has fallen to 13.2%, down 610 basis points year-over-year, indicating inefficiencies in utilizing shareholders' funds [19] Shareholder Value - AJG has raised its dividend five times in the past five years, achieving a five-year annualized growth of 7.9% and maintaining a payout ratio of 25% [20] Conclusion - AJG's strong global presence, client retention, and strategic acquisitions provide a solid foundation for growth in the insurance brokerage and risk management sectors. However, increasing expenses, high debt levels, and declining return metrics are beginning to affect profitability, which may temper near-term performance [21]

Core Viewpoint - Arthur J. Gallagher & Co. has successfully completed the acquisition of AssuredPartners, enhancing its capabilities in the insurance brokerage sector and expanding its client offerings [1][2]. Company Overview - Arthur J. Gallagher & Co. is a global insurance brokerage, risk management, and consulting services firm headquartered in Rolling Meadows, Illinois, operating in approximately 130 countries [8]. - AssuredPartners is recognized as a leading U.S. insurance broker with a diverse client base across commercial property/casualty, specialty, employee benefits, and personal lines [2]. Transaction Details - The acquisition was financed through net proceeds from previously disclosed equity and debt financing transactions [3]. - The Compensation Committee approved $316.15 million in equity awards to 572 former AssuredPartners employees to aid in retention, with vesting schedules set for immediate and subsequent anniversaries [4]. Expected Benefits - The transaction is anticipated to deepen Gallagher's capabilities in niche practice groups such as Transportation, Energy, Healthcare, and Government Contractors [6]. - It aims to create new business opportunities by leveraging Gallagher's expertise, data analytics, and extensive product offerings [6]. - The acquisition is expected to be financially attractive, with estimated double-digit adjusted EPS accretion, including the impact of synergies [6].

Group 1 - Arthur J. Gallagher & Co. announced the acquisition of Australia-based MACK Insurance Services, a commercial insurance broker focused on the agriculture sector [1][2] - The terms of the transaction were not disclosed, and Lizzie Carver and her team will join Gallagher's brokerage operations in Australia [1] - J. Patrick Gallagher, Jr., Chairman and CEO, highlighted that MACK's expertise in agriculture complements Gallagher's existing capabilities in Australia [2] Group 2 - Arthur J. Gallagher & Co. is a global insurance brokerage, risk management, and consulting services firm headquartered in Rolling Meadows, Illinois, operating in approximately 130 countries [2]

Core Insights - Arthur J. Gallagher & Co. has acquired Dion Leadership, Inc., based in Novi, Michigan, although the terms of the transaction were not disclosed [1] - Dion Leadership specializes in leadership coaching, management training, talent assessment, and organizational development consulting services across various industries [2] - The acquisition is expected to enhance Gallagher's capabilities in executive consulting, leveraging Dion Leadership's strong client relationships and expertise [3] Company Overview - Arthur J. Gallagher & Co. is a global insurance brokerage, risk management, and consulting services firm headquartered in Rolling Meadows, Illinois, operating in approximately 130 countries [3] - Steve Dion and his team will continue to operate from their current location under the leadership of Steve Coco, who is the Global Managing Director of Gallagher's Talent Consulting operations [2]

Core Viewpoint - Arthur J. Gallagher & Co. reported Q2 2025 earnings with adjusted EPS of $2.33 and revenue of $3.17 billion, both slightly below analyst expectations, highlighting strong profitability but a slowdown in organic revenue growth in the core Brokerage segment [1][2]. Financial Performance - Adjusted EPS for Q2 2025 was $2.33, compared to estimates of $2.36 and $2.29 in Q2 2024, reflecting a year-over-year increase of 1.7% [2]. - Revenue for Q2 2025 reached $3.17 billion, up 14.8% from $2.76 billion in Q2 2024 [2]. - Adjusted EBITDAC climbed to $1.01 billion, with a margin of 36.4%, an increase from 33.1% in Q2 2024 [2][6]. - Organic revenue growth in the core Brokerage segment decelerated to 5.3% in Q2 2025 from 9.5% in Q1 2025 [1][5]. Business Overview - Arthur J. Gallagher & Co. is one of the largest insurance brokers and risk managers globally, focusing on arranging insurance coverage, consulting services, and risk management solutions [3]. - The business model consists of two main segments: Brokerage and Risk Management, with a strategic focus on diversifying operations and pursuing growth through mergers and acquisitions [4]. Key Developments - The company completed 9 acquisitions in the quarter, generating an estimated annualized revenue of $290 million, with the pending AssuredPartners transaction valued at approximately $13.45 billion [7]. - Adjusted revenue for Gallagher Bassett, the risk management arm, increased to $391.8 million, with organic growth of 6.2% [8]. - The workforce grew to 59,291 employees, a 10% increase compared to the previous year [10]. Market Dynamics - The insurance market remains cautious, with property insurance renewal premiums falling by 7% in Q2 2025, while casualty lines rose by 8% in Q1 2025 [11]. - The quarterly dividend was raised to $0.65 per share, up from $0.60 in Q2 2024, indicating a positive outlook despite potential challenges in organic growth [12].